Schroders Emerging Markets Lens March 2025: your go-to guide to emerging markets
EM assets have been resilient so far this year, despite ongoing trade uncertainty
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Our latest edition of the Schroders Emerging Markets Lens is now available.
Below is a summary of key developments in the equity and debt markets and you can find the links to both presentations here:
Emerging Markets Lens: Emerging Market Debt
Summary of emerging market equities:
- YTD performance: YTD performance: despite ongoing uncertainty, emerging market (EM) equities (5%) have generated a positive return in USD terms as at 7 March, outperforming developed markets (DM) which have gained 1%
- Tariffs uncertainty: President Trump’s tariff announcements cloud the outlook and increase uncertainty. New tariffs on China and some on Mexico are now in place. EM exposure to potential tariffs varies by economy and market but is a complex assessment (slides 5-9). Read more: Who is at risk from tariffs and what do they mean for equity markets?
- EM valuations: headline valuations are slightly above the historical average on most measures. However, large markets India and Taiwan continue to skew the aggregate. Many individual EM are cheap versus their own history (slides 22-30).
- Relative valuation gap wide: the EM valuation gap to DM remains close to its widest level in 20 years on a 12-month forward price-earnings basis. EM is 44% cheaper than the US on this basis.
- What to watch: 1) US policy announcements and implications for the path of the US dollar. 2) Geopolitics - the evolution of global trade relations, and risk of escalation and/or broadening in US trade tariffs. 3) The prospect of further policy support in China. 4) The conflicts in Ukraine and the Middle East.
Summary of emerging market debt:
Hard currency emerging market debt (EMD) has made a solid start to 2025 and has remained resilient in the face of global trade uncertainty. Local EMD continues to outperform, with currency appreciation versus the dollar supportive.
Hard currency emerging market debt (EMD):
- HC sovereign EMD has returned 2.7% and corporate 2.3% YTD as at 7 March (slide 4).
- HC sovereign and corporate spreads widened slightly over the past month, albeit from historical tight levels (slides 17 and 23).
- President Trump has announced and subsequently imposed tariffs on China, and with some adjustments, on Mexico over the past month, though the impact on these bond markets has so far been limited.
- Ongoing trade risk: as well as trade deficits, President Trump has discussed reciprocal tariffs as an issue, among other others (slides 6-9).
Local currency EMD:
- Local EMD has returned 4.7% YTD, as at 7 March, aided by currency appreciation, notably from Latin America.
- The average real yield premium of EM over DM remains above 3% (slide 40).
- There are EM currencies which appear undervalued in all three EM regions, though the degree varies significantly (slide 45).
Chart of the month:
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