Citi's latest report on CEEMEA foreign exchange and rates highlights a shift towards tactical trades in emerging markets (EM) fixed income, as volatility is expected to rise amid geopolitical uncertainties, including the impact of "Trump 2.0." The report notes that EM local currency funds saw a recovery in 2024, ending with a small cumulative outflow of $1.4 billion, a significant improvement from the $11.8 billion and $43.2 billion outflows in 2023 and 2022, respectively. However, hard currency funds experienced accelerated outflows, totaling $17.3 billion by year-end 2024.
Citi analysts emphasize the importance of nimble positioning, focusing on idiosyncratic stories less tied to global macro trends. They highlight South Africa's significant $2.8 billion coupon payment in January, leading the CEEMEA region's $3.3 billion inflows from coupons. The report also points to high ex-ante real yields in Brazil and Turkey, with Brazil's real yields surpassing 10%. "This year will likely be the year of tactical rather than structural trades, especially in fixed income," Citi suggests, advising investors to remain adaptable in the face of potential market shifts.