Investing in 2025

Helen Keung - Client Portfolio Manager

Politically stable India remains the shining star of the emerging markets firmament, with its solid macroeconomic fundamentals and growing domestic investor class giving the bull market in equities more room to run in 2025.

India’s post-Covid bull market has been underpinned by world-leading macroeconomic growth coupled with sustained double-digit corporate earnings growth. Consequently, macro stability and a continuation of strong nominal GDP growth remain the core foundation for the sustenance of this bull market (MSCI India was up 11.2% in 2024; CAGR of 11% over the past four years). Despite a cyclical hiccup in economic growth – which unnerved investors – in Q2 FY25 and Q3 FY25, India’s macroeconomic environment remains stable, providing a favorable outlook for Indian markets in 2025.

Over the next few quarters, we see infrastructure spending continuing to lower logistics costs, with railways and highway construction being key beneficiaries of investment, a boost to select manufacturing sectors such as defense, electronics, aerospace and renewables, as well as housing investment. A reduction in GST rates to boost consumption, more free trade agreements and a continued focus on the energy transition with broadening the sources of energy supply, including nuclear, are potential supply-side policy measures we should expect from the government in 2025.

However, two emerging headwinds could impact returns. The first is the specter of rising US bond yields coupled with a stronger dollar. The second stems from the domestic market, where a surge in equity issuance could create pressure on valuations through diverting market liquidity. If these headwinds prove benign – and that’s how they appear as we enter 2025 – we anticipate India outperforming its EM benchmark for the fifth consecutive year.

Jie Lu, Head of Investments China

China’s long march out its deflationary slump is finally getting the fiscal and monetary coordination it needs, and we believe equities are likely to respond positively in 2025, with any clarity on Trump 2.0 trade policy likely to provide potential entry points.

Since late September the direction of travel has been clear. China’s fiscal and monetary policy are now coordinated to stimulate economic activity and drive growth in 2025, a proactive departure from the piecemeal attempts to support the economy from 2022 through mid-2024. Renewed urgency to the pro-growth policy mix has come from the imminent arrival of Trump 2.0 with widespread fears of increased tariffs impacting China’s exporters. We believe the trade policy approach is likely to be more transactional than indicated so far, while China will react with a tit-for-tat approach.

Despite the challenges and uncertainty, we believe there are healthy long-term investment opportunities in China. Many companies possess high-quality and long-term growth prospects, particularly in sectors focused on consumption recovery, technology self-sufficiency, and industrial upgrading. Furthermore, China remains deeply discounted both historically and in comparison to other emerging markets. Broader earnings revisions will take time to recover, but near-term liquidity from local investors and subsequent fiscal policies will be key factors to monitor.