‘Emerging markets’ is nothing but a broad umbrella term for a set of countries with very different dynamics. While this is always true, it will become more evident than ever in 2025, experts agreed.
As US president-elect Donald Trump has been loud about trade tariffs, the outlooks for single emerging markets have become more differentiated, with outlined winners and losers.
While remaining optimistic about the long-term prospects for emerging market equities in general, John Citron, co-manager of the JPMorgan Emerging Markets investment trust sees compelling growth opportunities in India, North Asia and Latin America in particular.
But there could be silver linings even for countries that might seem more challenged at first glance, according to abrdn chief investment officer Peter Branner.
“There can be both winners and losers from US trade policy. In fact, some of the most vulnerable countries – such as Mexico and Vietnam – are also best placed to gain from reshoring, if the US does pursue rapid decoupling from China,” he said.
Below, we dive a bit deeper into these countries’ outlooks; however, the jury will be out for the next 12 months.
China risks ‘Japanification’
Branner was the only expert to be warm on the Chinese market on the back of growth that does appear to be somewhat recovering and further policy easing looking “likely”.
“With valuations low, the asset class provides an attractive option, on the possibility of China delivering significantly more policy easing,” he said. “Further easing is necessary to offset both internal headwinds from the property sector and low inflation and external headwinds from US trade policy.”
Citron was slightly more guarded – to him, the country presents opportunities in selective sectors. Most notably, the advanced manufacturing and electric vehicle sectors are “thriving”, bolstered by government policies aimed at stabilising the economy and driving innovation.
Other key industries such as renewable energy and technology “continue to show strong growth potential, underpinned by both domestic consumption and global demand”.
For Carmignac chief economist Raphaël Gallardo, the absence of tangible stimulus at the March parliamentary sessions was a key reason to remain cautious.
“China already is on the verge of Japanification, or debt deflation, but sticks to reactive de minimis stimulus policies, with an ideological refusal to implement policies that could stimulate consumer spending,” he said.
“While president Xi Jinping's priority is to build a sanction-proof export-oriented economy on the technology frontier, the stabilisation of house prices in tier-one cities is insufficient to leverage home building activity at the national level.”
India benefits from valuations easing
There are many reasons to be positive about the fundamental prospects for Indian companies, according to Citron.
“The country has an economic system in which corporate skill is rewarded by the market and translated into value creation for shareholders, as well as an economy that is growing faster than any other major country,” he said. “These two conditions will continue to apply for a long time.”
One of his largest areas of investment has been IT services, where India has produced large world-class companies, including one of Citron’s key positions, Tata Consultancy Services.
India also appeared on Gallardo’s special-situations radar, as it enjoys “positive long-term growth and a recent softening of equity valuations”.
Latin America’s manufacturing, software and special situations companies are attractive
Going into 2025, JPMorgan’s Citron sees in Latin America’s diverse set of geographies “plenty of places to look for good investments”. While most people would not associate Latin America with export manufacturing or software, but that is exactly where is looking.
From his portfolios, Brazilian electric engineering, power and automation technology company WEG and Argentinian software developer Globant are virtuous examples of “strong businesses with a long runway of opportunity ahead of them” which can be acquired at the right price and have been notable contributors to the trust’s results in the last few years.
“If we can keep finding such opportunities, we can hope to continue adding value,” he said.
“What do these companies have in common? A clear focus on an area of expertise, an ability to differentiate their customer propositions and, crucially, a management team which converts this focus into a clear understanding of how to create value for customers, and hence for shareholders.”
Gallardo stepped into special-situation territory and in countries where significant reforms and turnaround policies are having an impact to find overlooked assets.
In particular, he is positive about Argentina, where inflation is moving from triple to double digits, and Ecuador, where the combination of reforms and support from international institutions is beneficial.
Fixed income faces headwinds
Finally, a stronger dollar and global trade uncertainty are likely to slow the pace of emerging market rate cuts, even as inflation is gradually returning to target, according to abrdn’s Branner.
As such, the management house has downgraded its signal on the emerging market debt, moving to a neutral stance.