Eastspring Investments, a $256 billion Asia-based asset management business of Prudential, has unveiled its 2025 Mid-Year Market Outlook. Against a backdrop of US-driven market uncertainty, it analyses global macroeconomics and investment opportunities in Asia and emerging markets in the second half of 2025.

Eastspring Investments believes that tariffs and significant US policy uncertainty will dampen global growth, with Asian and emerging markets poised to benefit from diversification needs and a weakening dollar.

Asia’s growth is expected to slow commensurate with the US tariffs applied to each market, the firm said in its outlook. In China, the recent cut in the US tariff rate has brought the weighted average rate down to about 35 per cent, implying a 1 per cent of GDP headwind to China’s growth this year. Nevertheless, Eastspring anticipates China’s GDP to grow close at 4.4 per cent this year, supported by fiscal stimulus and targeted policy easing.

In contrast, India is seen as Asia’s largest winner in the current trade environment. With exports to the US accounting for just 2.2 per cent of GDP – the second lowest in Asia – India is expected to grow 6.3 per cent this year and 6.5 per cent next year. “A trade deal with the US could benefit India by making it a more attractive production site for companies relocating from China,” the firm said.

Japan's outlook, with growth projected between 0.6 per cent to 0.8 per cent, largely hinges on securing a trade deal with the US. Meanwhile, ASEAN countries face varied outcomes, with growth in trade-dependent nations such as Vietnam, Malaysia, Singapore, and Thailand likely to slow by 0.5 per cent to 2.0 per cent due to weaker exports.

Indonesia and the Philippines are likely to be the least affected; consequently, Eastspring expects the Philippines GDP growth to sustain at 5.6 per cent this year.

The firm highlighted that Asian currencies will be positively impacted by a weakening dollar. While the dollar will maintain its reserve currency status for the foreseeable future, despite growing concerns over its longer-term outlook, further repatriation of funds out of the dollar will push it down at least 4 per cent – and possibly as much as 10 per cent – over the next year. Asian currencies are expected to strengthen as part of this dollar depreciation.

“With attractive valuations and light positioning, there is greater upside potential for Asia and emerging markets as investors seek greater diversification,” Vis Nayar (pictured), chief investment officer at Eastspring Investments, said. “Corporate earnings are also holding up well, particularly in Asia ex China with recent upgrades in India, Taiwan and Korea.”

Equities
Japan remains one of the cheapest markets globally, on a price-to-book basis. Earnings growth and free cash flow are also relatively strong. With strong corporate reforms and rising wage growth, Eastspring believes that Japanese equities offer a compelling long-term proposition for global investors.

“Despite being deemed expensive, India equities have shown resilience,” the firm continued. Continued support from the Reserve Bank of India, sluggish oil prices and resilient domestic inflows create a favourable backdrop for India equities. While valuations could become a headwind at some point, active managers should still be able to find opportunities.

Despite the challenges, Eastspring is cautiously optimistic about China equities over the medium to long term. That said, market volatility remains high. US-China tensions could still escalate. Eastspring favours companies with a track record of stable shareholder returns, strong competitive positions and greater earnings growth certainty. For investors seeking to gain exposure to China equities, beyond a standalone allocation, the firm believes that a combined China and India portfolio offers diversification across two Asian giants that have low correlated markets and distinct growth drivers.

In Latin America, the absence of incremental tariffs so far on Mexico was a positive surprise. Brazil is also a relatively closed economy with between 80 and 85 per cent of its GDP domestically driven, Eastspring said. Meanwhile, Poland, the Czech Republic, and Hungary have less than 2 per cent of their revenues tied to the US.

Fixed income
Given the current fluid environment, Eastspring thinks investors should maintain a globally diversified bond portfolio and rotate to countries that benefit from tariff de-escalation, supply chain re-routing, and domestic support.

In Asia, local currency bonds present an investment opportunity due to their attractive real yields and resilient economic fundamentals. Their low correlation with developed market assets and gradual inclusion in major bond indices also enhance their diversification appeal. Eastspring advises adding duration to bond portfolios across local Asia and emerging markets on any meaningful rates sell-offs.

“Agile investors can take advantage of dislocations arising from market volatility. Active stock selection is key in this market,” Nayar said. “By including Asia in a diversified portfolio, investors can benefit from the region's dynamic growth, diverse industries, and unique investment opportunities, ultimately enhancing the portfolio's resilience and potential returns.”