Emerging market (EM) stocks are expected to lag behind their global counterparts in the aftermath of Donald Trump’s recent election victory as U.S. President. Citigroup analysts cite potential disruptions from his trade policies and a strong U.S. dollar, which could exacerbate challenges for developing economies. This outlook persists despite global economic recovery and supportive policy measures from China.
Trade Risks and Regional Impact
Citigroup’s analysis emphasizes the adverse effects of heightened trade policy uncertainty, particularly on export-reliant countries. South Korea, for instance, has been downgraded to "underweight" due to weaker corporate profit growth and its vulnerability to declining U.S. imports. The analysts warn that Korea’s economy, heavily tied to exports, could face significant headwinds from restrictive trade policies.
Nevertheless, some optimism remains. Korea’s KOSPI index is forecast to reach 2,800 points by mid-2025, marking a 16% rise. This is attributed to a recovery in semiconductor earnings and potential tailwinds from domestic interest rate cuts by the central bank.
Saudi Arabia and India: Diverging Paths
Saudi Arabia and India have been highlighted as less vulnerable to direct trade risks, but their trajectories differ significantly. The oil-exporting nation received an upgrade to "overweight" from "underweight," with analysts citing robust oil profit growth and stability in global energy markets.
In contrast, India was downgraded to "neutral" from "overweight." The decision reflects stalling corporate earnings growth and foreign investor outflows, despite expectations for modest gains in the Nifty 50 index, which Citigroup predicts will rise by about 6% to 25,000 points by September 2025.
China’s Influence on Emerging Markets
China’s recent economic policy measures, including fiscal stimulus and industrial support, have sparked hope for broader regional recovery. South Africa, benefiting from these measures, has been upgraded to "overweight." Citigroup notes attractive profit growth opportunities in the country and tailwinds from China’s stimulus, which could bolster South African exports and investments.
However, the ripple effects of China’s policies remain mixed. While some nations stand to gain, others like India are grappling with competitive pressures and shifts in global capital flows.
Broad Outlook for Emerging Markets
Citigroup maintains a "neutral" stance on emerging market stocks, projecting the MSCI EM equities index to rise approximately 10% to 1,210 points by mid-2025. While the forecast suggests moderate growth, the overall sentiment remains cautious due to global trade uncertainty and uneven economic recovery across regions.
A stronger U.S. dollar poses additional challenges for EM assets, increasing the cost of dollar-denominated debt and deterring foreign investments. These dynamics further highlight the complexities facing emerging markets in navigating global economic shifts.
Key Takeaways for Investors
The mixed outlook underscores the need for a region-specific approach when investing in emerging markets. Countries with resilient domestic policies, like Saudi Arabia and South Africa, may offer better opportunities, while those exposed to global trade fluctuations, such as South Korea, face greater risks. As trade policies evolve under the new U.S. administration, investors will need to carefully monitor geopolitical developments and their implications for global markets.
(Source:www.usnews.com)
Trade Risks and Regional Impact
Citigroup’s analysis emphasizes the adverse effects of heightened trade policy uncertainty, particularly on export-reliant countries. South Korea, for instance, has been downgraded to "underweight" due to weaker corporate profit growth and its vulnerability to declining U.S. imports. The analysts warn that Korea’s economy, heavily tied to exports, could face significant headwinds from restrictive trade policies.
Nevertheless, some optimism remains. Korea’s KOSPI index is forecast to reach 2,800 points by mid-2025, marking a 16% rise. This is attributed to a recovery in semiconductor earnings and potential tailwinds from domestic interest rate cuts by the central bank.
Saudi Arabia and India: Diverging Paths
Saudi Arabia and India have been highlighted as less vulnerable to direct trade risks, but their trajectories differ significantly. The oil-exporting nation received an upgrade to "overweight" from "underweight," with analysts citing robust oil profit growth and stability in global energy markets.
In contrast, India was downgraded to "neutral" from "overweight." The decision reflects stalling corporate earnings growth and foreign investor outflows, despite expectations for modest gains in the Nifty 50 index, which Citigroup predicts will rise by about 6% to 25,000 points by September 2025.
China’s Influence on Emerging Markets
China’s recent economic policy measures, including fiscal stimulus and industrial support, have sparked hope for broader regional recovery. South Africa, benefiting from these measures, has been upgraded to "overweight." Citigroup notes attractive profit growth opportunities in the country and tailwinds from China’s stimulus, which could bolster South African exports and investments.
However, the ripple effects of China’s policies remain mixed. While some nations stand to gain, others like India are grappling with competitive pressures and shifts in global capital flows.
Broad Outlook for Emerging Markets
Citigroup maintains a "neutral" stance on emerging market stocks, projecting the MSCI EM equities index to rise approximately 10% to 1,210 points by mid-2025. While the forecast suggests moderate growth, the overall sentiment remains cautious due to global trade uncertainty and uneven economic recovery across regions.
A stronger U.S. dollar poses additional challenges for EM assets, increasing the cost of dollar-denominated debt and deterring foreign investments. These dynamics further highlight the complexities facing emerging markets in navigating global economic shifts.
Key Takeaways for Investors
The mixed outlook underscores the need for a region-specific approach when investing in emerging markets. Countries with resilient domestic policies, like Saudi Arabia and South Africa, may offer better opportunities, while those exposed to global trade fluctuations, such as South Korea, face greater risks. As trade policies evolve under the new U.S. administration, investors will need to carefully monitor geopolitical developments and their implications for global markets.
(Source:www.usnews.com)