Emerging markets have continued to show strong performance this year, with equities and local currency debt poised for double-digit returns in 2025. Despite this positive momentum, Emerging Market (EM) assets are experiencing outflows, while sentiment remains bearish on the US dollar but not pessimistic on Emerging Markets. CNBC Africa recently spoke with Mikhail Liluashvili, EMEA Cross-Asset Strategist at Bank of America, to delve into the reasons behind this complex market dynamic. Liluashvili highlighted several key factors driving the current trends in EM investments and provided insights into the outlook for the coming months. The recent volatility in Emerging Markets, particularly in foreign exchange (FX) markets, has been a cause for concern for investors. However, Liluashvili emphasized that the strength seen in EMFX post the sell-off during Liberation Day is justified and reflects the attractiveness of the Emerging Markets. Despite a brief dip in April, Emerging Markets have maintained their appeal throughout the year, and Liluashvili expressed optimism about their future prospects. It is noted that local markets are now more influenced by domestic investors than foreign investors, a trend that accelerated during the COVID-19 pandemic. Liluashvili expects foreign inflows to pick up, driven by the current underexposure to Emerging Markets. As more capital flows into EM, asset prices are likely to soar, benefiting from the lack of crowded positions. The interview also touched upon the concerns surrounding a potential recession in the US, fiscal challenges, and inflationary pressures. Liluashvili explained that a slowdown in the US economy relative to the rest of the world could actually benefit Emerging Markets, as it could lead to lower oil prices and a weaker dollar. While fiscal issues may cause some uptick in interest rates in EM, a synchronized slowdown in the US could be favorable for EMFX and bond markets. Looking ahead, Liluashvili identified June as a crucial month for EM, citing technical indicators pointing to an imminent correction. This correction, coupled with the light positioning in EM assets, could present a compelling entry point for investors seeking long exposure to the Emerging Markets. When asked about the key data points to monitor for insights into recession risks, inflation, and policy directions, Liluashvili stressed the significance of hard data from the US and highlighted the importance of inflation and labor market indicators. South Africa's market dynamics were also discussed, with Liluashvili viewing the country as a high beta to global EM factors. He expressed optimism towards South African assets, particularly the rand, citing potential for further appreciation given its undervalued status. Liluashvili painted a bullish outlook for South Africa amid a positive stance on Emerging Markets as a whole. In conclusion, while EM assets may currently face outflows and market uncertainties, the underlying strengths and potential catalysts suggest a promising outlook for Emerging Markets in the months ahead.