Emerging Market Equities
December 2024
- The biggest challenge for clients will be navigating a more volatile and unpredictable environment in EM
- EM remain both cheap and under-owned
- The trend of offshoring production is likely to accelerate
1. What do you think could be the biggest challenge or opportunity for clients in 2025?
The biggest challenge for clients in 2025 will be navigating a more volatile and unpredictable environment in emerging markets (EM). The evolving rhetoric on tariffs and trade wars will add to the uncertainty, impacting growth, monetary and geopolitical environments.
The election of Donald Trump with a ‘Red Sweep’ is raising questions about fiscal spending, tariff scales and timing. Key proposals include a 60% tariff on Chinese imports and up to 20% for the rest of the world. The new administration will face pressure to control inflation amid higher tariffs, tighter immigration policy and increased fiscal spending. Furthermore, the independence of the Federal Reserve (Fed) could be questioned if Trump attempts to remove its chair Jerome Powell. Geopolitical risks are significant, with potential escalations in the Ukraine-Russia War and the Iran-Israel tensions, which could severely impact energy prices. Retaliation from China and other trade partners to the new US tariffs could lead to devaluation and trade wars.
EM equities are at the core of these issues, influenced by US monetary policy, global growth, tariffs and geopolitics. Clients must be prepared to navigate these complex and interconnected challenges in 2025.
2. What do you see as the one major investment opportunity for you in 2025 and how can you capitalise on it?
Despite a challenging background, we remain constructive as we see many positive factors favouring EM equities. First, the worst outcome currently priced by the markets should not prevail. Though the new politicians around Trump are indeed hawks, the worst outcome on tariffs, retaliation and trade war is far from certain as it is facing legal actions and potential pragmatism. The performance of EM following Trump’s first election in 2016 was very positive, with significant gains both for EM and even Chinese equities.
Second, EM are cheap and under-owned. We expect lower rates in many EM in reaction to tariffs, which should support EM equities. Third, we believe China has the ability and willingness to support its economy, challenged by the real estate slowdown and potential new tariffs. Measures announced by the Politburo and the National People’s Congress (NPC) include fiscal spending, support to local governments, the housing market, lower interest rates and the stock market. The low exposure of Chinese equities to US exports (about 3% of earnings for MSCI China) implies a strong positive impact on earnings from government support.
Finally, the secular growth of EM remains intact. We see opportunities in resilient domestic consumer spending, regional travel, consumer finance, artificial intelligence (AI) proliferation, offshoring and energy transition. Companies like Alibaba, Meituan, Grab and Mercado Libre are favoured, with strong growth prospects and attractive valuations. We also see potential in EM travel expenditure, consumer finance, technology hardware and energy transition, with companies like TSMC, ASE Technology, SK Hynix, Samsung Electronics, MediaTek and Reliance leading the way.
3. What is the biggest risk to your asset class next year and how can you mitigate that risk, or even turn it into an advantage?
The biggest risk to our strategy is of course related to volatility around trade war headlines, but it will also offer many opportunities. For example, Trump’s hawkish stance on trade is likely to accelerate the trend of offshoring production. We remain positive on our exposure in South Asia, including Vietnam and Thailand, where we expect strong growth from industrial property and industrial service companies.
Ygal Sebban leads the Emerging Markets Equity team and manages the Emerging Markets Equity strategy at GAM Investments.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.