Investing.com-- Ashmore (LON: ASHM ) Investment forecasts significant opportunities for emerging markets (EM) in 2025, driven by economic reforms and geopolitical shifts, despite uncertainties surrounding U.S. trade policies under President Donald Trump.
"Economic fundamentals improving alongside credit metrics in most countries meant we saw far more sovereign credit rating upgrades than downgrades this year. We expect this trend to continue into 2025," Ashmore analysts said in a note.
The annual outlook highlights a robust recovery trajectory for EM economies. Ashmore points to consistent gross domestic product (GDP) growth surprises over recent years, supported by structural reforms and fiscal discipline. However, countries like Brazil and Mexico, which have deviated from fiscal discipline, face challenges.
Political developments in major EM nations are also shaping prospects, according to Ashore. South Africa’s transition to a coalition government is expected to enhance economic stability, while India’s fragmented parliament offers potential for balanced policy-making. Conversely, Mexico’s Morena party supermajority has dampened investor sentiment, highlighting the varied impacts of political dynamics.
The brokerage also examined the potential impacts of renewed U.S. trade tariffs under Trump’s administration. While tariffs pose risks to major exporters like China, Vietnam, and Mexico, Ashmore suggests that these measures may ultimately benefit EMs. Any resultant deflationary pressures in affected economies could prompt monetary easing, creating investment opportunities.
In the equity market, EM stocks are viewed as undervalued relative to developed markets, offering compelling risk-reward dynamics. Ashmore identifies Brazil, Chile, and South Africa as particularly attractive, citing catalysts like improved fiscal accounts and favorable commodity prices. Similarly, in the debt market, EM bonds provide attractive yields, according to Ashmore, supported by structural reforms and a favorable global interest rate environment.
Ashmore is projecting a base-case earnings growth of 13% by 2026 for EM equities. In a worst-case scenario, EM equities could see a 12% drop, while a best-case scenario suggests gains of 23%. However, Ashmore notes that favorable conditions, such as higher EPS and price-to-earnings ratios, could push returns as high as 40%, underscoring the appealing risk-reward profile of EM stocks.
Ashmore recommends a disciplined, active investment approach to navigate trade uncertainties and geopolitical risks. With careful allocation, the firm sees 2025 as a pivotal year for capitalizing on the growing resilience and potential of emerging markets.