Corporate credit
CEEMEA corporate credit enjoyed a favorable environment in 2025, supported by a strong sovereign backdrop and a wave of credit upgrades. The region enjoyed a constructive macro outlook with stable or improving fundamentals in key markets such as Turkey, Ukraine, and Uzbekistan. Investors favored high yield risk over investment grade, with Ukrainian credits added to overweight lists, despite ongoing conflict-related challenges. The Middle East and Africa presented mixed opportunities, with limited value in the Gulf Cooperation Council states, due to tight spreads but selective opportunities in Israel and among certain African Multilateral Development Banks. Turkish corporates showed resilience. We maintained constructive views on the cement and electricity distribution sectors, though risks remain in export-oriented and highly leveraged names.
For 2026, we expect CEEMEA corporate credit to benefit from continued macro stability and selective credit improvements. The sovereign environment remains supportive, underpinning high yield corporates. We expect rate cuts in Turkey and Nigeria to support local currency credits, while political and fiscal risks require ongoing monitoring. The oil price outlook remains soft, suggesting caution in high beta energy credits. We prefer lower beta names with strong cash flow profiles. In Turkey, we favor domestically oriented credits with inflation-linked revenues and strong liquidity. African credits, particularly in utilities and infrastructure, offer carry opportunities, in our view, amid improving fundamentals. Overall, we believe the region’s corporate credit market is positioned for stable to modestly positive performance, given careful credit selection and risk differentiation.
Local currency
South Africa
In 2025, South Africa emerged as one of the key local currency plays. A stable macroeconomic backdrop featuring steady annual headline and core inflation at 3.0%-4.0% and a gradual recovery toward 1.0%-1.5% growth has added to a more evident reform push. On the monetary policy front, the South African Reserve Bank (SARB) lowered its inflation target from 4.5% to 3.0%, a move confirmed by the National Treasury. Meanwhile, stronger-than expected fiscal revenues, combined with a continued commitment to fiscal discipline and smaller gross borrowing needs, enabled the Treasury to reduce bond issuance forecasts for the upcoming fiscal year. Together, these factors allowed South African government bonds to outperform other EM local currency yield curves in 2025, and we expect this supportive policy environment to persist.
Hungary
Hungarian local markets delivered strong returns in 2025, primarily driven by foreign exchange gains and carry. Looking ahead to 2026, we expect this performance to continue, as Hungary paused its easing cycle in 2025, but has the potential to resume it later in 2026. The central bank is expected to maintain high real yields through the first half of 2026, making unhedged positions attractive for generating strong carry returns, in our view, while helping to reduce the inflation risk premium. Additionally, opportunities in long-end rates may arise following the parliamentary elections, where the incumbent Fidesz party faces a credible challenge for the first time in a decade. Beyond politics, Hungary’s macroeconomic backdrop remains supportive of resuming the easing cycle in 2026.
Czech Republic
Among the higher-grade local markets in the CEE4 (Czech Republic, Hungary, Poland, and Romania), the Czech Republic stands out as offering good value, in our view. The market has been pricing in late-cycle easing by anticipating rate hikes that are unlikely to materialize. We believe a rate cut is more probable, given low inflation outcomes and already elevated real rates. We expect the central bank to move cautiously, and the currency to continue its gradual appreciation.
Romania
We believe Romania presents a compelling case, combining ongoing fiscal reforms with the potential for the start of an easing cycle amid weak growth and economic rebalancing in 2026. While leadership transitions and further fiscal reform initiatives are unlikely to take center stage until 2027, next year will likely focus on delivering the two-and-a-half to three percentage points of fiscal tightening outlined in the new government’s consolidation program. We expect the flow of European Union structural funds to support investment growth, offsetting the likely weakness in private consumption and helping the government to walk the thin line between fiscal consolidation and guiding the economy to a softer landing. Policy implementation is being driven by a strong and credible prime minister, whose party recently gained momentum following the PNL’s (National Liberal Party) mayoral victory in Bucharest.
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Non-investment grade bonds, also called high yield bonds or junk bonds, pay higher yields but also carry more risk and a lower credit rating than an investment grade bond.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.
