2025 Outlook: JP Morgan projects small gains for EM equities in 2025, remains overweight on India, cautious on China | Stock Market News

Market Outlook: The emerging markets (EM) posted decent returns for 2024, with most regional stock markets up for the year. The MSCI’s gauge for the emerging market stocks is set to end the year 5% higher, suggested a Reuters report, with Singapore set for a 17% annual rise, its best since 2017 and Kuala Lumpur stocks poised to post the best yearly gain since 2010.

Back home, Indian stock markets also posted a resilient performance in the face of multiple challenges, both domestically and globally. For the year, Indian markets are set to end 9% higher and post positive annual returns for the ninth year in a row.

Emerging Market Equities: A Cautious Outlook for 2025

Going into 2025, JP Morgan sees modest gains for EM equities against the backdrop of global policy uncertainties, a robust US dollar, and limited scope for easing within EMs. Persistent macroeconomic challenges, evolving geopolitical tensions, and elevated interest rates are also expected to test global markets. 

The brokerage maintained a cautious stance on EMs while reducing exposure to China, citing ongoing risks such as trade tariffs.

Historically, Federal Reserve rate cuts have benefited EM equities in terms of relative performance. However, JP Morgan noted uncertainty about the Fed’s capacity to cut rates beyond current market forecasts. Additionally, a strong USD remains a limiting factor for EM equity upside.

In equities, JP Morgan expressed an overweight (OW) stance on India and the UAE within emerging markets, Japan’s banks, and US industries. The brokerage also recommended being OW on South Africa, leveraging US exceptionalism (OW Mexico), gaining exposure to the AI trade through Taiwan, and adopting USD defensiveness with an OW on the UAE.

The firm emphasised that global equity markets in 2025 would navigate a dynamic landscape shaped by multiple cross-currents. The primary equity theme for the year is anticipated to be heightened dispersion across stocks, sectors, styles, countries, and themes. JP Morgan advocated a theme-driven and opportunistic approach to EM investments, moving away from traditional benchmark-based strategies.

Thematic Investing in 2025

JP Morgan highlighted the importance of a theme-driven approach to equity investing in 2025, as opposed to relying solely on benchmark indices. It expects higher dispersion across stocks, styles, sectors, and countries, necessitating a selective and opportunistic allocation strategy.

Amid the ambiguity surrounding the US policy changes, JP Morgan has outlined a selection of trades anchored in strong fundamentals and driven by idiosyncratic factors. These trades, the brokerage noted, are designed to remain relatively insulated from policy shifts.

Sector Allocations: The brokerage recommends a defensive bias with overweight positions in:

Financials: Supported by better net interest margins during shallower easing cycles.

Information Technology: Benefiting from exposure to generative and edge artificial intelligence (AI).

Utilities: Gaining from strong pricing power.

Conversely, it advises underweight positions in:

Materials: Impacted by slowing demand from China and Europe.

Consumer Discretionary and Real Estate: Limited upside due to lacklustre stimulus measures from China.

Factor and Style Preferences:

Overweight Value: Attractive in scenarios of inflation upside or prolonged economic cycles due to improved supply-side responses.

Overweight Quality: Suited for environments where the economy slows but avoids recession, with limited monetary easing.

Underweight Growth: Growth stocks are viewed as overvalued and unlikely to sustain outperformance.

Underweight Size: Small-cap stocks may underperform due to a lack of inflows into EM and weaker momentum.

Commodities and Credit Strategies

JP Morgan also shared its insights on commodities and credit markets:

Gold: Recommended as a long position due to its macroeconomic resilience across scenarios.

Oil: Advised as a short position, citing weak supply and demand fundamentals that align with the U.S. energy agenda under Trump’s policies.

Credit Markets: The brokerage expressed confidence in credit markets, highlighting the resilience of balance sheets compared to earnings in trade war scenarios.

Through extensive refinancing and liability structure transformation, companies have successfully extended debt maturities. JP Morgan noted that barring sector-specific excesses, higher default rates would only materialise in a recessionary environment.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.