Outlook 2025: Tech to facilitate emerging market growth amid tariff challenge
Industry experts expect to see significant foreign direct investment (FDI) across Asia Pacific in 2025, driven by sectors including artificial intelligence (AI), semiconductors, and electric vehicles; as well as the concurrent technological and economic advancement of emerging economies. However, uncertainty surrounding US trade tariffs has been highlighted as a great concern.
“Although growth in most emerging Asian economies slowed in Q3 2024, notably in Hong Kong, South Korea, and Taiwan, we continue to see ample opportunities across emerging Asia in 2025,” Marcella Chow, global market strategist at JP Morgan Asset Management told AsianInvestor.
The slowdown reflects a recent decline in export momentum across Asia, driven by cyclical weaknesses in the global manufacturing sector and gradual moderation in semiconductor export growth.
Chow expects semiconductor exports from North Asia to increase in the near to medium term, supported by ongoing structural strength in AI-related products and high-performance computing (HPC) demand.
Tariffs and geopolitical uncertainties
“Within emerging Asia, the ‘China Plus One’ strategy and the reshuffling of global trade will likely continue to benefit economies like Asean, while pro-growth domestic policies have fuelled investment into India,” according to JP Morgan’s Chow. “This will likely expand India’s economic growth beyond traditional sectors, like financials, information technology (IT) and consumer staples to other sectors, such as consumer discretionary and new-age disruptive businesses tailored for the local market,” Chow added.
Chow noted that the ongoing supply chain reorganisation suggests growing demand for infrastructure as India develops into another global manufacturing hub, competing with China and Asean. Such changes will likely benefit transport and infrastructure assets.
Earnings growth in Asean should be supported by favourable demographics and increasing consumption. With Asean valuations attractive compared to India, the region offers opportunity for income-seeking investors due to higher dividend payouts, JP Morgan’s Chow said.
“Navigating geoeconomic risks in an era of resurgent US economic nationalism presents significant challenges,” David Makoni, senior fixed income analyst, at the Bank of Singapore, told AsianInvestor.
Can EMs weather the storm?
China faces the highest proposed tariff of 60%, while other markets could face a 10% “universal” tariff. These tariffs are expected to be differentiated, with lower rates on goods where China is the dominant supplier to the US, and higher rates where there are alternative sources.
“China is more likely to opt for nontraditional trade retaliation measures that would disproportionately impact the US, such as currency depreciation, withholding supplies of critical minerals, reducing imports of politically sensitive US products, selling off US assets, extending tax rebates to local exporters, and cutting interest rates,” Chopra said.
This year, a strong technology upcycle has led to resilient export growth for both Korea and Taiwan. However, the two countries are expected to be among the most exposed to the proposed 10% universal import tariff under the new administration, Chopra said.
While China has various strategies to counter US tariffs, countries like Korea and Taiwan may lack the resources to effectively respond to such trade measures.
US stocks vs. EM stocks
Despite the strong performance of the US equity market in recent years, Martin Hennecke, head of Asia investment advisory at St. James’s Place, warns that investors should not overlook the potential of EMs.
“Other markets, particularly EMs, supported by attractive valuations and growth potential, might well stage a comeback in 2025 and beyond,” Hennecke told AsianInvestor.
He also noted that the relative performance of different EMs may not be solely influenced by their current relationship with the Trump administration.
“Global trade is now a lot less US-centric than it was 10-15 years ago. 90 out of the world’s 190 countries trade more than twice as much with China than the US now,” Hennecke explained.
Bank of Singapore’s Makoni added, “We believe Asia faces the best prospects for receipt of FDI, given the high growth prospects, middle-income status of key markets, and proximity to major FDI source countries such as China, Japan, and South Korea.
“The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has also enhanced regional trade partnerships, with countries from Europe such as the UK, Canada in North America, and Chile and Peru in Latin America that should provide diversified market access to exporting countries from the region,” he added.