Investing in Emerging Markets: Ashmore's 2025 Outlook

Investing.com– Ashmore (LON:ASHM) projects significant opportunities for emerging markets (EM) in 2025, driven by economic reforms and geopolitical shifts, despite uncertainties from U.S. trade policies under President Donald Trump.

Economic Fundamentals

Ashmore analysts noted that improving economic fundamentals and credit metrics led to more sovereign credit rating upgrades than downgrades this year, a trend expected to continue into 2025.

The annual outlook highlights a robust recovery trajectory for EM economies, pointing to consistent GDP growth surprises in recent years fueled by structural reforms and fiscal discipline. However, challenges remain for countries like Brazil and Mexico, which have strayed from fiscal discipline.

Political Landscape

Political changes in major EM nations influence prospects. South Africa’s transition to a coalition government is projected to enhance economic stability, while India’s fragmented parliament may promote balanced policymaking. In contrast, the Morena party’s supermajority in Mexico has dampened investor sentiment, illustrating varied impacts of political dynamics.

U.S. Trade Tariffs

The potential effects of renewed U.S. trade tariffs under Trump’s administration were also examined. While tariffs present risks for major exporters like China, Vietnam, and Mexico, Ashmore suggests they could ultimately favor EMs by creating monetary easing opportunities through deflationary pressures in affected economies.

Equity and Debt Markets

In the equity market, EM stocks are seen as undervalued relative to developed markets, presenting compelling risk-reward dynamics. Brazil, Chile, and South Africa are identified as attractive markets due to improved fiscal accounts and favorable commodity prices. Moreover, EM bonds offer appealing yields, underpinned by structural reforms and a favorable global interest rate environment.

Growth Projections

Ashmore forecasts a base-case earnings growth of 13% for EM equities by 2026. In the worst case, a 12% drop is possible, while the best case suggests a 23% gain. Favorable conditions could lead to returns as high as 40%, highlighting the attractive risk-reward profile of EM stocks.

Investment Strategy

Ashmore advocates for a disciplined, active investment approach to navigate trade uncertainties and geopolitical risks. With careful allocation, they view 2025 as a pivotal year to capitalize on the increasing resilience and potential of emerging markets.