Emerging markets in 2025 balance challenges and opportunities, led by India’s transformation and China’s evolving trade dynamics, according to asset manager Ninety One’s outlook.
The return of Donald Trump to the US presidency has reignited concerns over trade protectionism and tariffs on China, but the broader impact on emerging markets is far from uniform, according to Peter Kent, co-head of emerging market fixed income, and Archie Hart, co-portfolio manager, emerging markets equities, Ninety One. Kent observed that emerging market performance post-election was “mixed” rather than uniformly negative, highlighting the diversity within the asset class. “Winners will coexist with losers,” Kent said, as supply chains continue diversifying away from China. Hart added: “Trump’s desire to end conflicts in Ukraine and the Middle East could reduce the geopolitical risk premium priced into many emerging market assets.”
China’s trade relationship with the US has steadily diminished, with exports to the US now comprising just 14%, down more than 25% over the last decade. Investors should instead focus on China’s domestic policies, particularly government stimulus measures that stabilise the economy. “While many market participants focus on the macro picture in China, the bottom-up view is more interesting,” Hart said, highlighting opportunities in value-driven consumer products, healthcare, pensions and life insurance, and restructuring companies offering dividends and buybacks.
The case for US dollar strength, driven by higher interest rates, a strong economy, and weak competition from major currencies like the euro, seems compelling in the short term, according to Ninety One. However, the duration and impact of dollar strength may be milder than expected, as markets often overestimate one-sided trends. Ninety One also predicted dollar conflicts with key Trump policies, like rebalancing trade and revitalising the Rust Belt (geographic region stretching from New York through the Midwest that was once dominated by the coal industry, steel production, and manufacturing: Investopedia).
India’s rise as a key emerging market player is gaining momentum, with the country potentially overtaking China as the largest emerging equity market in the next 3-5 years. Hart highlighted transformative policies like Aadhaar, which have economically activated 500 million people, and infrastructure developments like metro projects and high-speed rail.
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“India’s equity market is now trading at a growth premium; expectations are high, and valuations look stretched. Yet there are some great companies to invest in – should a correction take place in the equity market in 2025, valuations should become more reasonable. In the meantime, investors need to be highly selective and avoid getting caught up in the euphoria,” said Hart. Kent added: “The country’s inclusion in the flagship emerging market local bond index in 2024 underscores the maturity of the asset class. Significant evolution over the past 20 years has created a higher quality, more diverse and less volatile market, with India’s inclusion a welcome development in that regard.”
Diversifying supply chains are creating “regional winners” across emerging markets, according to Ninety One. Eastern Europe, Association of Southeast Asian Nations (Asean) markets, and Africa are all seeing gains as companies relocate from China. Hart highlighted the potential in technology, which now accounts for 35-40% of emerging market market capitalization: “Just as tech drove US equities, a similar phenomenon could drive emerging markets forward, taking many by surprise.”
In fixed income, Kent highlighted opportunities in higher-yielding markets benefiting from “growth-friendly” US and Chinese policies. Local debt in frontier markets offers attractive yields with low volatility, while corporate debt across emerging markets remains compelling due to low default risks and manageable refinancing. Kent and Hart highlighted “India, where companies are benefiting from positive macroeconomic growth stories.”
Regional opportunities include Latin America, with a focus on Brazil and Colombia, as well as sectors like utilities and renewable energy that align with the global push toward net-zero goals, they explained. Although Mexico may feel the strain of Trump-era tariffs and immigration policies, domestic sectors like utilities and banking remain relatively shielded and promising. Globally, the experts highlighted utilities for their defensive qualities and renewable energy potential, both bolstered by the net-zero transition.
