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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.”
