With emerging markets and Asian equities outperforming developed ones since the start of the year, at a media event in London this month, UK-based Aberdeen Investments discussed whether they have further room to run and highlighted evolving opportunities.

At a media event this month attended by WealthBriefing, Devan Kaloo, head of equities and head of global emerging markets at Aberdeen Investments, highlighted that so far this year emerging markets have outperformed their developed peers.

“For many years, the US has been outperforming emerging markets due partly to the strength of the dollar and the rise in big tech. It is pleasing for me to see emerging markets outperform the US this year, with concerns about US tariffs less than expected,” Kaloo said.

“We are positive about emerging markets as the dollar has weakened which is good for emerging markets and valuations are attractive,” he continued. “Emerging market interest rate cuts combined with a cheap dollar will drive flows to emerging market equity markets.” Isaac Thong, senior investment director of Asian equities and fund manager of Aberdeen Asian Income Fund, also emphasised that emerging markets and Asia offer a favourable backdrop for income investing, with firms being less indebted and having more room to increase payout ratios.

Structural advantages of emerging markets include a young population, an expanding pool of middle-income consumers and leadership in high growth industries including AI and the electrification of transport.

China
Although Bob Gilhooly, senior emerging market economist at Aberdeen Investments, doubts whether the US and China will strike a trade deal, he believes that China should be able to weather the storm. “Chinese exports have fallen by 30 per cent to the US, but it still has strong exports to Asean countries and Europe,” Gilhooly said at the event. “China’s growth rates have also weakened but growth is still quite strong and it has not been so damaged by US tensions.” He thinks that Chinese exports will continue to challenge manufacturers elsewhere and tech will do well.

Gilhooly also pointed out that green investment is a strong policy lever in China, with new renewable capacity in the first half of 2025 expanding as much as the whole of 2024. Grid capacity and ancillary infrastructure investment will be needed to support the renewable rollout. While China still relies on fossil fuels, it produces more than 80 per cent of all solar photovoltaic panels, half of the world’s leading electric vehicles and a third of its wind power. 

While China faces many structural challenges over the next five years, Gilhooly takes comfort from China’s new five-year plan to accelerate the green transition, after it wrapped up its fourth plenum meeting of the Communist Party of China last Thursday.

“Renewable power investment is increasingly being used as a macro-stabilisation lever, which we estimate [will] largely offset the drag from real estate bubble being deflated over 2023 and 2024, and, given the need to deal with overcapacity, we expect that power capacity, storage facilities and investment to integrate renewables into the grid will be ramped up,” Gilhooly said.

Mark Haefele, chief investment officer at UBS Global Wealth Management, also said at the event that he sees good opportunities in select Asian markets, notably China and Japan. "We see the supply-driven focus and ongoing policy support, especially for advanced manufacturing, R&D, and green sectors, as key tailwinds for investors," he said. "We continue to rate China’s tech sector as most attractive and China equities overall as attractive, with double-digit upside expected for the MSCI China Index over the next months. From a bottom-up point of view, we favour leaders in cloud, e-commerce, AI, digital infrastructure, and select financials and utilities."

India
Rita Tahilramani, investment director at Aberdeen Investments and manager of abrdn New India Investment Trust, said that India is facing some near-term uncertainties, including those brought on by US 50 per cent tariffs on Indian goods exported to the US. But she believes that India’s long-term structural growth story remains intact.

“The direct impact of those tariffs on India is expected to be relatively limited, given that approximately 80 per cent of the Indian economy is domestically oriented. However, second-order effects could still materialise as a result of the broader global trade war,” Tahilramani said. “If the US macroeconomic environment weakens due to tariffs, corporate decisions, particularly around information technology spending, may be affected, potentially impacting Indian IT services in the medium term.”

“In terms of portfolio positioning, we have relatively low exposure to Indian exporters directly affected by the tariffs, particularly those in the textiles and apparels sector,” she continued. “Most of our portfolio is focused on companies with domestic growth drivers and, given our quality focus, we expect the portfolio’s downside to be well protected.”

“India is still expected to grow at a faster clip than peers such as China and other emerging markets. While earnings growth has slowed in recent quarters, we expect India to continue generating comfortable double-digit earnings growth over the medium term,” Tahilramani said. In her view, India has the fiscal and monetary legroom to support the economy.

They are not alone in their views. A number of wealth managers have come out recently in favour of emerging markets and Asia this year, for instance Paris-based Amundi, Carmignac and Indosuez, as well as GIB Asset Management and Franklin Templeton. See more here, here and here.