Emerging markets are currently facing a complex landscape as they strive for growth amidst various external challenges. According to a recent report by AXA Investment Managers, while emerging market growth steadied in 2024, inflationary pressures have been contained, allowing for some optimism. However, the outlook for 2025-2026 remains cautious, with growth forecasts expected to fall below trend due to factors such as US protectionism and a slowdown in China [1457a0d6].
Financial experts Varun Laijawalla and Archie Hart from Ninety One have previously highlighted five critical elements suggesting a potential rebound in emerging market (EM) equities. They noted that the stabilization of the strong US dollar, effective inflation management by central banks, and rising income levels could provide structural tailwinds for these markets [5f86d842].
Despite these positive indicators, the AXA report warns that consumer demand may remain resilient, but investment could decline due to ongoing trade uncertainties. Limited fiscal space, exacerbated by elevated interest rates, poses additional challenges for emerging markets as they navigate the aftermath of shocks from the pandemic, inflation surges, and the 2022 terms-of-trade shock [1457a0d6].
Ruchir Sharma, Chairman of Rockefeller International, also pointed out the potential of emerging markets, particularly in light of a weakening US dollar. He emphasized that while India is on a positive trajectory, other markets like Greece, Poland, and Southeast Asia may offer better value for investors [c90e2b51].
The AXA report further highlights that geopolitical risks and trade dynamics will significantly impact EM currencies, with Trump's potential second term raising concerns over increased US tariffs that could affect EM exports [1457a0d6]. Notably, Argentina is projected to grow by 5% in 2025-2026, while Colombia's GDP growth is expected to accelerate, and Turkey's growth is anticipated to rebound in 2026, contingent upon necessary structural reforms [1457a0d6].
Overall, emerging markets are at a crossroads, balancing the need for investment with the realities of global economic pressures. As they move forward, the resilience of these markets will be put to the test, requiring strategic adaptations to thrive in an increasingly complex environment [1457a0d6][5f86d842].