Harnessing growth potential in complex markets Through Strategic Planning and Risk-Aware Investment Approaches in the year ahead
Emerging markets (EMs) remain an efficient gateway to powerful secular themes, from technology-driven transformations to consumer growth stories. We interviewed eight of our colleagues about what they believe is in store for this year, from China and the global macro landscape to emerging markets equities and emerging markets debt. For more insights, read the full whitepaper.
Olga Bitel, partner, global strategist, says that before the U.S. election on November 5, 2024, the outlook for the world economy looked robust and consistent with economic expansion.
“But the results of the U.S. election have made this outlook far more uncertain,” she says. “There are now many more plausible outcomes, and their distribution is nearly flat, with both left and right tails having increased significantly.”
However, across EMs, “we see resilient corporate performance, attractive valuations, and a diversified opportunity set, which we think create exciting investment prospects, offering high-growth opportunities in under-researched, less efficient spaces,” says Casey Preyss, partner, portfolio manager.
This long-term growth potential is echoed by Ian Smith, portfolio manager, who observes that “a long-term growth story appears to be unfolding in EMs. I believe that maintaining a balance of growth potential and quality will be essential. EM investors may want to focus on regions showing strong structural improvements.”
But navigating these opportunities will likely require a disciplined approach. “It will still be crucial to focus on high-quality companies within EMs,” says Todd McClone, partner, portfolio manager, citing the impact of “a stronger outlook for the U.S. economy potentially keeping the U.S. dollar stronger and U.S. interest rates higher for longer.”
Beyond traditional sectors, emerging technologies and sustainability themes are capturing attention. “We believe there’s enormous growth potential in sectors connected to the artificial intelligence (AI) supply chain and renewable energy,” says Paul Birchenough, portfolio manager. “Strategic investments in these areas have the potential to deliver compelling long-term returns, even amidst broader market volatility.”
As for emerging markets debt, Marcelo Assalin, partner, and head of the William Blair EM debt team, says, “We anticipate a favorable market environment for EM debt in 2025 and believe that higher volatility induced by political noise and bombastic rhetoric could create opportunities for long-term investors.”
China remains a unique investment case. Vivian Lin Thurston, partner, portfolio manager, says, “Despite the economic and trade-policy headwinds, there appear to be distinct opportunities in Chinese equity markets for quality growth investors. But in a market that is so policy driven, improving fundamentals don’t always translate to stock performance. We believe this underscores China’s need for pro-growth, pro-market leadership with the right policy mindset to stimulate and normalize this giant economy.”
Clifford Chi-wai Lau, portfolio manager, provides another perspective. He says, “China has been shifting export share to EMs for nearly a decade in response to rising protectionism from the United States and the European Union. But unless EMs see strong economic growth, China’s efforts to diversify its export base likely won’t offset the impact of tariffs imposed by developed markets. That is why we believe policies aimed at reviving domestic demand in China are all-important.”
Looking ahead, expectations of higher U.S. interest rates and a stronger dollar are likely to challenge EM currencies and investor sentiment. EM investors should be prepared for uneven outcomes across regions in 2025.
