2025 Investment Outlook – Asia Fixed Income: Emerging Markets
As the Fed begins its easing cycle, the potential spread widening will put tight Asia sovereign bonds at risk. Find out more.
Many of the world’s central banks, having largely succeeded in curbing inflation, are now easing monetary policies with the aim of stimulating growth. In 2025, we anticipate signs of economic deceleration to be counteracted by the supportive impact of the global rate-cutting cycle. In other words, we think we are seeing a soft landing. We expect a near-term growth slowdown followed by a reacceleration through 2025. This should create a favorable environment for global risk assets.
Inflation has cooled substantially in most major economies, with no significant downturn for global growth. And it appears that the long-anticipated “soft landing” has arrived in the US. So what happens next? Our 2025 Annual Investment Outlook focuses on what investors might expect to see after the landing.
Read on to explore our market views for equities, fixed income, currencies, and alternatives, as well as potential events that could have a positive or negative effect on our base case.
Inflation has cooled substantially in most major economies, with no significant downturn for global growth. And it appears that the long-anticipated “soft landing” has arrived in the US. So what happens next? Our 2025 Annual Investment Outlook focuses on what investors might expect to see after the landing.
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Our base case is that global growth reaches near potential rates through 2025, supported by policy easing and real wage growth in many major developed economies. But the path ahead could shift under different assumptions.
We expect the Federal Reserve to cut its policy rate to neutral (around 3.5%) by year-end 2025, and US growth to decelerate to trend but then reaccelerate and outperform most developed markets. We expect growth in Europe and the UK to improve from their current relative weakness. Chinese growth remains below trend, but recent stimulus has raised the probability of an upside surprise.
There’s a possibility that falling inflation and rate cuts could help accomplish a “Goldilocks” environment (not too hot, not too cold) across most economies. This could foster greater regional participation versus our base case and lead to a period of growth at potential across most major economies while inflation remains near target rates. China could also experience an upward surprise that helps lift emerging markets.
There’s a possibility that weak patches in recent data could presage a sustained growth deceleration in key economies, including the US. In this scenario, as activity falters, central banks would enact more rate cuts to counteract the growth slowdown, resulting in below-trend performance in the first half of the year, followed by a pick-up towards trend in the latter half of the year.
Overall, we expect a conducive environment for risk assets, particularly in non-US developed markets, small capitalization stocks, and value sectors in the US, with European assets likely to outperform due to favorable valuations and cyclical sector weightings.
Areas we favor
Areas we favor
Areas we favor
2025 Investment Outlook – Asia Fixed Income: Emerging Markets
As the Fed begins its easing cycle, the potential spread widening will put tight Asia sovereign bonds at risk. Find out more.
2025 Investment Outlook – Asia Fixed Income: High Yield
Heading into 2025, we continue to favor BB-rated issuers which have robust credit fundamentals and consistent cash generation in the Asia high yield space. Find out more.
2025 Investment Outlook – Asia Fixed Income: Investment Grade
We believe Asia IG credit will continue to deliver solid returns in 2025, mainly supported by the moves in US treasuries. Find out more.
2025 Investment Outlook – Asia Equities
Looking ahead to 2025, we expect domestic demand in Asia to strengthen as the effects of earlier monetary tightening wane. From a valuation perspective, Asia ex-Japan equities currently appear attractive. Find out more.
2025 Investment Outlook – China Equities
Since market expectations are currently subdued, we believe there is substantial room for growth in 2025 and we are constructive on Chinese equities in the next 12 months. Find out more.
The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested.
All data as of October 31 2024, unless otherwise stated.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Views and opinions are based on current market conditions and are subject to change.