Why 2025 might be the year for emerging markets

Key Takeaways

• Emerging markets (EM) may see a continuation of a relatively strong earnings trend in 2025, especially versus developed international markets.
• Near the end of 2024, emerging markets traded at one of the lowest forward price-to-earnings differentials relative to the S&P 500 index in the past 20 years.
• Several economic drivers in China that have hurt emerging-market equity returns in recent years could inflect positively, either helping EM stocks or no longer holding them back.
• Emerging-market stocks appear likely to face specific challenges under a Trump administration, especially related to possible tariffs, although several fundamental factors may be more favorable than in the first Trump administration.

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