Asia and global emerging markets delivered strong returns in 2025, but the big question is whether the rally can continue. Fund Calibre were joined by Patrick Garvin, the client portfolio manager for the Invesco Asian and Invesco Global Emerging Markets fund, on their most recent podcast.
This episode explores the key forces shaping the outlook for the region, including earnings growth driven by the AI cycle, the impact of a weaker US dollar and changing policy dynamics in China.
The conversation also examines the Chinese property downturn, supply chain shifts and the most compelling opportunities across emerging markets.
Why you should listen to the interview: Emerging markets can be complex, but this interview helps break down the key drivers behind recent performance and what may come next.
It offers clear insights into China’s recovery prospects, the impact of global currency trends and where investors may still find attractive opportunities across Asia and emerging markets.
This interview was recorded on 24 February 2026 before the US attack on Iran, views may have changed. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
Why emerging markets may be reaching an inflection point
“Yeah, it’s great to be talking about the asset class with such a positive perspective. If we go back to what the components were that drove returns last year, we obviously saw quite a significant re-rating for Asia and emerging markets.
“But there was also a significant contribution from earnings growth as well, specifically given the AI-driven upcycle in technology.
“Looking forward into 2026, I think it’s going to be more about the delivery of earnings.
“We’ve already seen quite significant upward revisions to consensus expectations for earnings per share growth, specifically given the strength of growth in technology. But there is also scope for that to broaden out into other sectors.
“It certainly feels like moving into 2026 that an active approach is going to be more important.
“This period of outperformance for emerging markets also needs to be considered on a relative basis, because the asset class has underperformed developed markets for 10 to 15 years now.
“There have been discrete periods of outperformance, but there are signs that we may be reaching a bit more of an inflection point.”
Why a weaker dollar matters for emerging markets
“The first thing to say is we’re not currency experts, but a softer dollar has historically been a tailwind for emerging market assets because it supports growth and lowers real rates.
“That eases financial conditions, and we’ve seen funding costs for emerging market companies come down over the last couple of years.
“It’s also supportive for commodity prices, and there is quite a high correlation between commodity prices and emerging market earnings per share. It also attracts capital inflows from investors looking to seek higher returns outside of the US.
“Last year was a weak year for the dollar, probably the weakest we’ve seen since 1973 when the US left the gold standard.
“But when you look at the valuation metrics for the US dollar, it still appears pretty overvalued on most measures, whether that be real effective exchange rates or purchasing power parity.
“The narrative around US exceptionalism continues to be challenged given the policy uncertainty coming out of the current administration. That is increasing the argument for investors to seek greater diversification.
“While we get some mixed messaging from the US, it does feel like policymakers continue to prefer a weaker dollar. If the dollar stays weaker, emerging market assets should continue to benefit.”
The reality of China’s property downturn
“I think we’re closer to the end of the downturn in the property cycle than the beginning. The first thing to say is that the downturn has been partly engineered going back over 10 years.
“The authorities were clearly concerned about the build-up of financial risk within the system, particularly over-leveraged private sector property developers.
“That saw them try to constrain the access to credit these developers had with the three red lines policy announced in 2020 and 2021.
“That was a policy they adhered to during the pandemic, which with hindsight we can probably look back on as a policy misstep considering how it weighed on consumer sentiment.
“What we’ve seen in the last 12 to 24 months is a change in direction from the authorities. The leadership has now acknowledged the problem and pledged to deal with it, and that has restored some confidence to the real estate sector.
“However, what we’ve seen over the last 12 months is that prices have rolled off again. From their peak, residential property prices in China are down about 25%, and more so in some of the smaller cities.
“When we look at new home sales last year, they were down roughly 10% year-on-year on a square metre basis, and that is less than half the value in terms of transactions compared with the peak.”
Two opportunities in Chinese consumer stocks
“The areas that have done well are those that have benefited from strong demand and constrained supply, whether that is in memory or commodities like copper. But those opportunities are beginning to feel a little more mature.
“We tend to take a contrarian approach at the point of purchase when we’re looking for new ideas. So we look at what underperformed last year. Quality as a factor was clearly out of favour.
“How you define quality is open to debate, but there have been some more interesting ideas in consumer staples, healthcare, IT services and leisure.
“The real opportunity is where we have conviction that investor sentiment has become disconnected from fundamentals.
“For example, if we look at Chinese consumer companies, you have a company like China Resources Beer, one of China’s leading brewers, now trading on a price-to-earnings multiple of around 13 times, which is the same as China Shenhua, China’s largest coal miner.
“This is one of China’s most resilient consumer names with strong fundamentals, but valuations have de-rated significantly and are close to multi-year lows.
“There are concerns about demand for beer and younger people drinking less. However, China Resources Beer has been growing its higher-end beer volumes through its joint venture with Heineken, which has been particularly successful and represents a much higher-margin product.”
Conclusion: Asia and emerging markets remain a diverse and evolving investment landscape.
While macroeconomic forces such as currency movements, geopolitics and China’s economic cycle continue to shape sentiment, the interview with Patrick highlights how strong earnings growth and selective opportunities are supporting the asset class.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
Main image: Asia, India, map, globe, christian-lue-2Juj2cXWB7U-unsplash
