Emerging markets are expected to face challenges in 2025 due to a potential downturn in returns. Factors contributing to this outlook include a slowdown in global growth, the threat of trade tariffs, and the strengthening of the U.S. dollar under a Trump presidency.
UBS has downgraded its ratings for Taiwan and Singapore to "Underweight" due to concerns about stock valuations and potential economic risks.
The potential for trade tensions, particularly with China and Mexico, is a significant concern that could create additional headwinds for emerging markets.
Trump's economic policies are expected to lead to a prolonged period of elevated interest rates in the United States, strengthening the dollar and increasing bond yields, which will place additional pressure on emerging markets.
UBS maintains a positive stance on China but adopts a more reserved view on India.
The importance of focusing on markets with higher earnings sensitivity to improving domestic economic conditions and lower exposure to U.S. exports is emphasized to mitigate risks and capitalize on local economic growth.
Investors in emerging markets must navigate a complex array of challenges and opportunities, considering trade policies, currency fluctuations, and sector-specific dynamics.