28 Nov 2024

Eastspring Investments 2025 Market Outlook Investment Opportunities in Asia and Emerging Markets Amid Shifting Tides

  • Heightened volatility from US and China policies to impact investment decisions
  • Focus on fundamentals such as valuations and earnings
  • Diversifying sources of returns is key

SINGAPORE (28 November 2024) - Eastspring Investments (“Eastspring”), the USD271 billion1 asset management business of Prudential plc, sees selective opportunities in Asian and Emerging Market (EM) equities and bonds as the world steps into 2025, a year anticipated to be marked by unpredictability and periods of market volatility.

While global growth is expected to be positive in the first half of 2025, the second half could be largely influenced by developments in the US and China. Heightened periods of volatility are expected to arise and coincide with shifts in market dynamics, presenting global investors with opportunities to diversify their portfolios and capitalise on evolving trends. 

“Periods of market volatility present active opportunities in Asian and Emerging Market equities. Longer term growth drivers such as increased capital expenditure, decarbonisation, and supply chain diversification can lead to higher earnings in these markets. Ongoing corporate reforms are expected to continue strengthening balance sheets in Asia, especially in Japan,” commented Vis Nayar, Chief Investment Officer, Eastspring Investments.

A more volatile global economic backdrop also suggests that investors will need to take a disciplined approach to optimise their risk-adjusted returns. Looking at fundamentals, picking the right entry points and selecting stocks with visible earnings growth drivers will be key in portfolio construction.

Defensive strategies, such as low volatility, multi asset and dividend income investing, will also help mitigate downside risks and contribute to more stable returns.

EM equities: Where are the opportunities in 2025?

Asia’s giants

  • China: China’s near-term uncertainties call for caution, but equity valuations are relatively cheap, and the Chinese government may implement additional stimulus measures. The government’s recent debt swap initiative aims to repair municipal balance sheets, thereby improving the municipalities’ ability to increase spending to stimulate domestic consumption. Companies that provide goods and services to government agencies such as telecommunications, infrastructure construction and waste treatment companies, and consumer companies are direct beneficiaries of this initiative.
  • India: The Indian economy presents structural opportunities amid cyclical challenges and near-term earnings uncertainty. Large-cap companies in the Financials, Telecommunication, and Healthcare sectors are relatively more attractively priced compared to their smaller-cap peers. Ongoing reforms, rising urbanisation, and supply chain shifts are expected to support India’s economic and earnings growth over the longer term.
  • Japan: The equity market rally may broaden out in 2025 with greater opportunities for mid-to-small cap stocks. These stocks are poised to enjoy spillover benefits from domestic economic drivers such as rising wages and increased consumption. Improving corporate governance should also support share prices.

Emerging Asia

  • Malaysia: Banking, construction and building materials sectors are expected to benefit from the rise in government infrastructure projects. Rising discretionary spending and strong employment will aid the Consumer sector while medical tourism will boost the Healthcare sector.
  • Thailand: The new government’s stimulus programme is expected to stimulate private sector investments, employment, raise incomes and therefore consumption, and accelerate digital transformation. Hospitality, retail and airline stocks should benefit from increasing disposable income and a recovery in tourism, while the focus on digital infrastructure will favour companies in the renewable energy and technology sectors.
  • Indonesia: The new Prabowo government’s pro-growth policies and fiscal initiatives are expected to bolster the Consumer Staples and Financials sector. The nation’s focus on welfare spending will boost consumption, and favour value-for-money food companies.
  • Vietnam: Companies in the financial, consumer discretionary, information technology and industrial sectors, as well as logistics asset owners, are well positioned to benefit from supply chain shifts and higher discretionary spending.

    Latin America and Central & Eastern Europe, Middle East and Africa (CEEMEA)

    • Brazil and Mexico: Geopolitical changes are diversifying global supply chains away from China. This shift is enhancing the manufacturing value add in regions like Latin America significantly. Prospect for higher commodity prices and a more market-friendly Presidential candidate in 2026 offers potential upside for Brazil, while increase in foreign direct investments should benefit Mexico. 
    • CEEMEA: The selloffs in Emerging Europe have generated interesting investment opportunities in attractively valued well diversified companies with strong balance sheets and limited exposure to slowing demand from Developed Europe.  

    Thematic investing spotlight: Artificial Intelligence (AI)

    Asian tech companies offer investors exposure to the AI theme but at cheaper valuations than the Magnificent 7 in the US. Opportunities can be found in:

    • Semiconductor upstream supply chain: raw material suppliers, chip vendors, foundries, and outsourced semiconductor assembly & test players.
    • Downstream component and original design manufacturing/original equipment manufacturing vendors and semiconductor production equipment suppliers.

    Fixed income: Boost overall returns via carry; re-engage at better entry points; add duration on dips

    Anticipated tariffs may hurt trade-dependent economies like Europe, EMs and Asia, supporting a strong USD outlook over the medium term. That said, expectations surrounding tariffs and additional fiscal spending remain speculative.

    “The spike in US Treasury yields in the last quarter of 2024 has increased the attractiveness of USD-denominated credits. At the same time, Asian currency bonds fully hedged to USD can offer higher yields due to meaningful carry advantage from a cross-currency basis,” added Vis Nayar.

    Carry returns are expected to contribute to the majority of fixed income portfolio returns. Eastspring also sees merit in being flexible and seizing opportunities across local and hard currency debt. It reduced exposure to higher-beta EM local currency debt pre-US election but will look to re-engage at better entry points.

    Finally, although the current level of bond yields makes the case to add duration, investors will need to be nimble as USD duration continues to be subjected to volatility risks. It may be more prudent to increase duration via non-USD denominated credits.

    For more information and details on the above highlights, please visit https://www.eastspring.com/lu/2025-market-outlook to download the full report.

    1As of 30 Sep 2024.

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