Chetan Sehgal, Portfolio Manager, Templeton Emerging Markets Investment Trust, looks at how US policy-driven volatility might affect emerging markets.
The year 2024 was notable for elections globally, it was also a year of political shifts and uncertainties that are likely to linger in 2025. Of note would be policy-driven volatility that would impact the portfolio’s investment universe as the new Trump administration enters office.
China is attempting to minimise the risks inherent within geopolitical tensions by keeping up with its policy support. In 2025, we may see signs of macro stabilisation from these policies, possibly allowing scope for a cyclical recovery. Taiwan and South Korea are equally trade-oriented countries, and therefore are also vulnerable to changes in tariffs and regulations. That said, the key technology-related exports of these two countries’ have either limited substitutes or lack substitutes and could pass on the burden of increased tariffs to their customers. In our view, it could be challenging to also implement tariffs on key strategic allies and trading partners such as Taiwan and South Korea. However, we maintain a watchful eye on developments on this front.
In contrast, the Indian economy and stock market are more decoupled from the United States relative to other EM countries. While we do not rule out the possibility of a future correction in India’s equity market, we do see longer-term opportunities in what we regard as well-run private sector banks in India. These banks are key beneficiaries of rising penetration and credit growth emanating from the country’s macro themes around financialisation, digitalisation and premiumisation. Similarly, our holdings in some LatAm-based banks also hinge on the premise of rising penetration in their countries.
The low visibility and high volatility in the external environment can lead to a wide range of outcomes. Given this backdrop, we continue to retain a focus on bottom-up stock selection. We favour companies with durable competitive advantages, and we look for management teams that demonstrate flexibility in adapting to change.
Main image: jose-murillo-svzLN-hSvBQ-unsplash