(Bloomberg) -- In countries where the threat of default never goes away, there’s a trading strategy that’s delivering big returns. 

It works like this: find companies that are resilient, even if there’s a war a few hours away, sky-rocketing inflation or worries that the government can’t pay its debt. And while diving into markets like Argentina and Ukraine isn’t for the faint of heart, specialist investors say there’s money to be made hunting down the right bargains. 

Case in point are Ukrainian poultry giant MHP SE and steelmaker Metinvest BV. While the companies have seen parts of their business upended by the war, they’ve adapted and kept factories humming as the conflict dragged on. Both have continued to make interest payments on their bonds, and the prices have doubled since the invasion started. MHP’s May 2024 notes and April 2026 notes trade in the ballpark of 60 to 70 cents on the dollar. 

In contrast, while Ukraine’s government bonds have also rallied in recent months, the notes maturing in September 2025 trade at 33 cents. The country has frozen interest payments until next year.

Dimitry Griko, who founded London-based Arkaim Advisors to focus on corporate credit in emerging markets, is among those reaping the rewards. His $317 million Emerging Markets Corporate High Yield Debt Fund delivered a 15% return in the past year and ranking in the 99th percentile for five-year and three-year performance. He counts Argentinian and Ukrainian companies among his top three holdings. 

“The common feature is they’ve all sold off more than they initially deserved,” he said. “We have companies where the assets are extremely geographically diversified and the Ebitda, for example, was not as influenced by the war as one would expect.”

In Argentina, the trend is similar. The government debt has sold off sharply since outsider Javier Milei unexpectedly won presidential primaries, with vows to abolish the central bank and dollarize the economy. Bonds due 2030, among the nation’s most liquid, fell to 31.6 cents on the dollar in the following week.

Investors, however, are more optimistic about Argentina’s booming oil fortunes. The July 2027 bonds of state-run driller YPF SA have handed investors a return of 25% so far this year and trade at 85 cents.  

While there have been a handful of standout companies, overall total returns in emerging-market corporate debt has been flat this year. A Bloomberg index tracking the space is up about 2%, with investors seeing less of a chance of a US recession or major spillover effects from China’s ailing property market. It marks a recovery from 2022, when the debt index plunged 15%, the worst annual performance since 2008. 

There’s still plenty of risk in picking the right bonds and when there’s an economic meltdown, it tends to infect companies and governments alike. In May 2022, Sri Lanka fell into default for the first time in its history, unable to cope with a political crisis and mass protests. Nine months later, SriLankan Airlines reneged on the interest payment for a $175 million bond. 

But for savvy investors that can find companies able to thrive in a difficult economy, it’s a trading strategy worth the risk, according to Okan Akin, a credit analyst at AllianceBernstein in London. There were 15 developing nations with sovereign dollar bonds at distressed levels as of Wednesday, according to a Bloomberg index.

“With healthy financials and a solid ability to meet their repayment obligations, many companies in distressed countries offer good investment opportunities,” he said. 

--With assistance from Volodymyr Verbyany, Kerim Karakaya, Maria Elena Vizcaino and Scott Squires.

(Updates prices in eighth paragraph and adds detail on EM bond index in 11th.)

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