Weekly Report

Executive Summary: The week of March 6 was defined by a violent oil price shock: WTI crude surged sharply to close near $90/bbl on Friday — one of the largest weekly gains in years — while Brent moved into the $80–90/bbl range as traders priced in real supply disruption risk from the Strait of Hormuz. The catalyst was the US–Iran war, which entered its seventh day on Friday March 6, with traffic through the Strait severely curtailed and heightening concerns over global supply. This supply shock reshapes the macro backdrop for EM credit: oil-importing sovereigns face acute fiscal and current account stress, while the inflation transmission through supply chains — not demand — is the primary channel to monitor. Separately, China’s NPC opened on March 5 with a GDP growth target of 4.5–5% for 2026, the lowest band in decades and below the long-standing “around 5%” reference, generating muted initial market disappointment.

Macro Overview

🛢️ Oil Shock: Strait of Hormuz Premium

WTI’s powerful weekly move — closing near $90/bbl on Friday — marked its strongest rise in years, with prices briefly trading well above that level in early Asian hours as overnight liquidity magnified the war premium. Brent moved into the mid-$80s as of March 5 and has been trading in an $80–90/bbl range, consistent with major bank estimates that current pricing embeds a sizeable but not yet extreme Strait of Hormuz disruption premium. The surge reflects the near-closure of the Strait of Hormuz, through which roughly 20 million bpd of oil and refined products — about one-quarter of global seaborne oil trade — normally flows. JPMorgan and other banks estimate that a multi-week restriction through Hormuz could push Brent sustainably above $100/bbl, depending on the duration and severity of the disruption.

🌐 Macro Themes: Inflation Transmission & Geopolitics

• Inflation Channel: The primary inflation risk from this oil shock runs through supply chain disruption, not headline energy demand. The Global Supply Chain Pressure Index (GSCPI) — our preferred leading indicator — remains the key metric to watch, particularly given that current shipping disruptions are geographically concentrated around the Strait of Hormuz and Red Sea corridor.
• US–Iran War & Geopolitical Bifurcation: The conflict entered Day 7 on March 6. US Secretary of Defense Hegseth’s statement that the US has “only just begun to fight” signals a prolonged engagement. China and Russia have condemned the operation; the deepening US–China bifurcation is accelerating pressure on previously non-aligned EM sovereigns to choose sides, with direct credit implications for the frontier universe.
• Electoral Calendar: Peru, Brazil, Colombia, and Hungary all head to the polls in 2026. The Venezuela regime transition (Maduro removed January 3; Delcy Rodriguez serving as interim president) also introduces significant EM political risk in Latin America. The US midterms in November add further late-year uncertainty.

Regional Credit Developments

🌍 EM Ex-Asia Credit

• Bahrain: Middle East risk premium intensified materially this week given its geographic proximity to the Strait of Hormuz closure. Oil-linked Gulf sovereigns face a short-term revenue windfall but also heightened threat exposure. Spread movements are being monitored; positioning unchanged.
• Hungary: Spread widening continues ahead of the 2026 elections, compounded by EUR weakness and geopolitical overhang from the broader Eastern European bloc. The forint has been under pressure as risk aversion builds globally.
• Kenya: Continued fiscal consolidation concerns and IMF programme negotiations are weighing on spreads. The sharp rise in oil prices adds to Kenya’s import bill, with the country importing approximately 100% of its petroleum requirements. Monitoring for re-entry levels.
• Colombia: Heading to elections in 2026, Colombia’s USD-linked oil export revenues will be temporarily boosted by higher Brent prices — a short-term credit positive — though political uncertainty around the administration’s energy and fiscal policy remains the key risk. The Colombian peso and Latin American FX more broadly could experience divergence depending on net oil trade position.
• Venezuela: Following the January 3 US military operation that removed President Maduro, sovereign bonds — in default since 2017 — remain in active price discovery. Bonds have been trading in the low-to-mid 30s (cents on the dollar), with restructuring recovery value estimates from major asset managers clustering in the 40–50 cent range under an optimistic scenario, contingent on oil production recovery requiring multi-year, multi-billion dollar capital investment.
• Argentina & Ecuador: Both remain special situations. Argentina regained market access in 2026, with spreads seen converging toward average B-rated sovereign levels. Ecuador bonds delivered strong gains in 2025 following President Noboa’s election win and an IMF facility augmentation from $4bn to $5bn.

🇨🇳 Asia Credit: China — NPC & Market Reaction

• NPC GDP Target (4.5–5%): China set its 2026 GDP growth target at 4.5–5% on March 5 — the lowest on record since the early 1990s and the first time since 2019 that a range rather than a single-point target has been used. The prior three years all targeted “around 5%”. Consumer goods subsidies were trimmed to CNY 250bn (from CNY 300bn in 2025), while the official budget deficit was set at 4% of GDP, with CNY 1.3tn in ultra-long-term special bonds and CNY 4.4tn in local government special-purpose bonds planned. Stimulus was broadly perceived as below expectations.
• Hang Seng Index: The HSI closed up on March 5 as some relief buying emerged after the GDP target was broadly in line with consensus. However, initial NPC reaction was mixed given the absence of large-scale new stimulus, and institutional positioning remains cautious in the context of elevated global risk-off sentiment driven by the Hormuz situation.
• Alibaba / China HY: BABA and large-cap tech names saw modest CB volatility this week, with geopolitical risk-off sentiment and the modest NPC stimulus headline combining to cap any upside. The team is tracking equity-credit dislocations for relative value entry. China HY property names remain distressed with no new significant issuer developments this week.

🌏 Asia Credit: Frontier & Sovereign

• Pakistan: Among the more notable movers in the frontier sovereign complex this week. The ongoing conflict with Afghanistan is adding country-specific political risk on top of the broader EM risk-off tone. Pakistan bonds delivered strong gains in 2025 following the IMF staff-level agreement and subsequent rating upgrades, meaning current spread widening is partly mean-reversion from elevated valuations.
• Sri Lanka: Continued spread volatility as the post-restructuring recovery path is tested by the global risk environment. Sri Lanka successfully restructured its hard currency debt in 2025; current moves are secondary-market repricing rather than fundamental credit deterioration.
• Airlines Sector: The aviation sector faces a meaningful headwind from the surge in jet fuel and crude benchmarks. Airlines had previously been viewed as potential beneficiaries of lower fuel costs, but with WTI having moved into the $80–90/bbl zone — and intraweek prints even higher — forward fuel assumptions must be reset before deploying new long risk in the sector.

Watch

• Oil Shock: The IEA has proposed emergency reserve releases to temper the supply shock. Any Strait of Hormuz ceasefire or coordinated G7 reserve deployment could trigger a sharp oil price reversal with immediate knock-on effects across EM credit spreads — both oil-exporters (spread compression) and oil-importers (relief). The duration and severity of the Hormuz disruption remains the single most important variable for EM markets in the near term.
• Ratings Monitor: Several issuers are on negative and positive watchlists pending agency action from Moody’s, Fitch, and S&P. Oil-importing frontier sovereigns (Kenya, Pakistan, Sri Lanka) face the most acute near-term review risk given the deteriorating current account implications of sustained $80–90/bbl oil. The credit library will be updated as rating actions are published.