EM insights to elevate your 2025 investment advice

The first few weeks of the New Year offer numerous opportunities to get up to speed with the investment themes and trends that will potentially drive financial markets over the coming one- to three-years.

If you want to stand out from the financial advising crowd, it makes sense to pay close attention to the communiques and 2025 outlooks distributed by major investment brands because they hint at how your clients’ funds end up being invested. Adding these insights to your strategy can position you as an informed adviser ready to add value to your clients. 

US-China trade tensions are old news

In their 2025 outlook, Ninety One’s Peter Kent, Co-Head of Emerging Market Fixed Income, and Archie Hart, Co-Portfolio Manager, Emerging Markets Equities offered some useful insights into recent geopolitical developments alongside which asset classes show promise for the coming period. 

The big question, and first up for discussion, was how Trump’s second term would affect international trade. Investors were cautioned not to obsess over headlines on the basis that US trade protectionism and a more aggressive stance towards China was not a new phenomenon. Many measures introduced in Trump’s first administration were left unchanged under President Biden, and  there is significant uncertainty around the eventual magnitude and focus of any new tariffs introduced from 2025. 

They asset manager opined that the impact of Trump 2.0 would likely differ from one emerging market to the next. “Post the US election, rather than succumbing to a blanket sell-off, emerging market performance was mixed; this highlights the huge diversity of the investment universe in terms of economic structure, fundamental strength and trade relationships,” Kent said. 

Hart agreed that emerging market outcomes would diverge before explaining how the Trump administration might bring positive developments for astute emerging market investors. For example, he noted that progress towards resolving disputes in the Middle East and Ukraine had the potential to “remove the geopolitical risk premium priced into many emerging market assets.” Overall, successful conflict resolution could bolster returns in various affected markets and sectors. 

Powerful domestic factors at play

China may sit in the emerging market bucket, but the world’s second largest economy demands further attention. To begin, you need to realise that China’s exports to the United States have been in steady decline over the past decade, from around 25% to just 14% by the end of 2023. The point is that the introduction of additional trade tariffs may be less impactful than feared. So, rather than obsess over the impact of new tariffs, investors keen to make sense of China’s short-term prospects should focus on the country’s internal economic policy. 

“While many market participants continue to focus squarely on the macroeconomic picture in China, the view from the bottom up is a lot more interesting; there are plenty of Chinese stocks to invest in, typically relating to three key shifts taking place in China,” said Hart. These shifts include consumers ‘trading down’ from luxury labels to value products; age-related demand for healthcare, life insurance and pensions; and company restructuring to boost earnings and reduce costs. A bottom-up approach offers a granular perspective, helping asset managers and advisers identify specific sectors with strong growth potential. 

India is another emerging market powerhouse, and there is a growing consensus that it could overtake China as the largest emerging market economy over the next three to five years. “India boasts a transforming economy with a range of government policies implemented over the past few decades now feeding through into economic growth and company profits,” said Hart. Overall, India is empowering more of its citizens to participate in the economy; building 45 kilometres of new road every day; creating its first high-speed railway; and undertaking a variety of pro-growth infrastructure projects. 

Do not get caught up in market euphoria

The experts cautioned that recent investor optimism may have inflated India’s financial markets, and warned against getting caught up in the euphoria. “India’s equity market is now trading at a growth premium; expectations are high, and valuations look stretched,” Hart said. He added that there were some great Indian companies to invest in provided a correction take place in the equity market in 2025, allowing valuations to become more reasonable. 

Hart and Kent seemed satisfied with the short-term case for continued US dollar strength. The world’s reserve currency has been supported by higher interest rates; strong economic growth in 2024; the potential negative impact of trade tariffs on other currencies; and the fact that major currencies like the euro are not posing any real challenge. On the flipside, it turns out that “a strong dollar is diametrically opposed to some of Trump’s key policy ambitions.” In this light, the experts held that one might question the assumption that the dollar will remain exceptionally strong for a protracted period. 

Tencent investors might disagree

The outlook did not focus on South African opportunities; but it is worth noting early New Year developments around the favourite domestic route to technology exposure, Naspers. Naspers is for all intents and purposes a proxy for China’s Tencent which took a major hit following a US decision to add the firm to its blacklist of Chinese firms. Locally, investors could do little more than watch as Naspers shed as much as R320 billion in market capitalisation on the day the news broke. Tencent countered by orchestrating the biggest buyback of its shares since 2006. So, there was some light amidst the gloom. 

Concerns over US meddling aside, China stands out as a potential destination for clients who have a few dollars to allocate to emerging markets ex-South Africa. According to Investec, Chinese manufacturers could benefit from significant growth opportunities in Africa and Asia, both huge markets that are growing considerably faster than Europe and the United States. The asset manager said that companies that position themselves to benefit from this shift will be poised for strong growth. 

Further emerging opportunities derive from the ongoing reorganisation of global supply chains. For instance, Eastern Europe has become an attractive destination for German and French companies to outsource to, while the ASEAN markets are benefiting from companies moving out of China and looking to diversify some of their risk. “It is going to be increasingly difficult for China to sell an electric vehicle into the United States or Europe, but taking a pan-emerging market view, there is significant growth potential in another sector: technology,” Hart said. 

Investec and Ninety One are not the only asset managers talking up China. In its discussion of dominant trends for 2025, Foord Asset Managers identified China as possibly “one of the best performing global share markets” for the coming period. Portfolio Manager, Ishreth Hassen, singled out the country’s current economic positioning, stimulus support and valuation advantages as reasons for optimism. “Valuations remain compelling, with Chinese corporates holding cash reserves equivalent to 27% of their total market cap, positioning them to deliver exceptional shareholder returns,” Hassen explained. 

Banking on clean energy and technology

Delving a bit deeper, he offered the clean energy and technology sectors as presenting significant opportunities. “China is positioned as the world's largest manufacturer of clean energy products, with a dominant share in electric vehicles and batteries; with the government now actively supporting shareholder returns through buybacks and dividends, we expect strong outperformance relative to global peers,” he said. 

Could we see a Magnificent Seven type boom out of China? Time will tell. For now, Hart concluded: “Between 35% and 40% of the market cap in emerging markets is now technology related in one form or another; the tech sector is what has driven the US equity market in recent years and a similar phenomenon could drive emerging markets going forward, with the potential to take many market participants by surprise.” 

Writer’s thoughts:

Emerging markets like China and India present exciting opportunities for 2025, but they require careful consideration. Have you adjusted your clients’ emerging market exposures entering the New Year? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.