emerging markets and trade finance: a good match emerging markets and trade finance: a good match http://www.federatedhermes.com/us/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedhermes.com/us/daf\images\insights\article\cargo-ship-stern-small.jpg July 23 2025 July 24 2025

EM and trade finance: a good match

The unmet demand for credit in emerging markets creates compelling investment prospects. 

Published July 24 2025
My Content

Trade finance supports the production of goods and facilitates their movement along the value chain, both domestic and cross-border. Emerging markets (EM) boast unique attributes, including the potential for higher returns, faster economic growth and access to commodities. The two intersect in a way that deserves more investor attention. 

Many countries and regions within developing markets are fundamentally underserved in terms of access to credit. That provides an ideal environment for trade finance, which can serve both as a source of alternative capital and offer investors attractive potential return despite the risks.

Rising share of world trade

Over the last two decades, globalization has shifted a significant amount of industrial activity and supply chains from developed to developing markets. The result is a substantial growth of emerging markets’ share of global trade. Between 2000 and 2019, it rose from 32% to 46% and EM’s portion of foreign direct investment climbed from 15% to 46%. 

The Organization for Economic Co-operation and Development says the majority of the world’s GDP growth now occurs in emerging markets, supported by younger populations and a fast-growing middle class. These factors have transformed production and consumption patterns. EM have increasingly become a destination for — as well as an originator of — trade flows. Many EM countries are rich in natural resources, such as oil and gas, metals and agricultural products, and are leading producers of primary goods.

Effective risk mitigation 

Despite the improvement, many investors remain wary of emerging markets because of the exposure to jurisdictional and country-specific risks, such as geopolitical instability, less-developed regulatory systems and macroeconomic volatility. But these challenges can be mitigated to make investing more palatable.

For example, the risk to portfolio credit quality from fluctuations in the US dollar can be lessened by investing in hard-currency transactions. Employing market-standard English and New York law-governed legal documentation can address idiosyncrasies in local laws. And incorporating features like the offshore routing of cash flows or advance waivers of immunity can help protect against nonpayment, convertibility and transferability risks.

But financing remains an issue

Emerging markets don’t have access to the breadth of funding available in developed markets, with banks usually the primary source of credit. Here is where trade finance can step in. In contrast to investments in public credit markets, it is not beholden to a fixed universe of issuers. Strategies independently select where and when to deploy capital, and which companies and projects to back. in underserved EM capital markets, this flexibility has the potential to result in attractive risk-adjusted returns for investors. Indeed, the intersection between the two presents a host of opportunities. 

Tags Markets/Economy . International/Global . Fixed Income . Geopolitics .
DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country.

Prices of emerging market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets.

International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.

Investments in trade finance-related instruments may entail credit, liquidity, currency, and market risks in addition to other risks, such as the risk of investing in foreign securities and emerging market securities.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future results. 

This is a marketing communication. The views and opinions contained herein are as of the date indicated above, are those of author(s) noted above, and may not necessarily represent views expressed or reflected in other communications, strategies or products. These views are as of the date indicated above and are subject to change based on market conditions and other factors. The information herein is believed to be reliable, but Federated Hermes and its subsidiaries do not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. This document has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. 

This document is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities, related financial instruments or advisory services. Figures, unless otherwise indicated, are sourced from Federated Hermes. Federated Hermes has attempted to ensure the accuracy of the data it is reporting, however, it makes no representations or warranties, expressed or implied, as to the accuracy or completeness of the information reported. The data contained in this document is for informational purposes only, and should not be relied upon to make investment decisions. 

Federated Hermes shall not be liable for any loss or damage resulting from the use of any information contained on this document. This document is not investment research and is available to any investment firm wishing to receive it. The distribution of the information contained in this document in certain jurisdictions may be restricted and, accordingly, persons into whose possession this document comes are required to make themselves aware of and to observe such restrictions. 

United Kingdom: For Professional investors only. Distributed in the UK by Hermes Investment Management Limited (“HIML”) which is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. HIML is also a registered investment adviser with the United States Securities and Exchange Commission (“SEC”).

European Union: For Professional investors only. Distributed in the EU by Hermes Fund Managers Ireland Limited which is authorised and regulated by the Central Bank of Ireland. Registered address: 7/8 Upper Mount Street, Dublin 2, Ireland, DO2 FT59. 

Australia: This document is for Wholesale Investors only. Distributed by Federated Investors Australia Services Ltd. ACN 161 230 637 (FIAS). HIML does not hold an Australian financial services licence (AFS licence) under the Corporations Act 2001 (Cth) ("Corporations Act"). HIML operates under the relevant class order relief from the Australian Securities and Investments Commission (ASIC) while FIAS holds an AFS licence (Licence Number - 433831).

Japan: This document is for Professional Investors only. Distributed in Japan by Federated Hermes Japan Ltd which is registered as a Financial Instruments Business Operator in Japan (Registration Number: Director General of the Kanto Local Finance Bureau (Kinsho) No. 3327), and conducting the Investment Advisory and Agency Business as defined in Article 28 (3) of the Financial Instruments and Exchange Act (“FIEA”). 

Singapore: This document is for Accredited and Institutional Investors only. Distributed in Singapore by Hermes GPE (Singapore) Pte. Ltd (“HGPE Singapore”). HGPE Singapore is regulated by the Monetary Authority of Singapore. 

United States: This information is being provided by Federated Hermes, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, and Federated Investment Management Company, at address 1001 Liberty Avenue, Pittsburgh, PA 15222-3779, Federated Global Investment Management Corp. at address 101 Park Avenue, Suite 4100, New York, New York 10178-0002, and MDT Advisers at address 125 High Street Oliver Street Tower, 21st Floor Boston, Massachusetts 02110.

Issued and approved by Federated Investment Management Company

221814039