Amid geopolitical uncertainty, opportunity is growing in select emerging markets

18 Feb 2025

Countries such as South Africa, India and China offer new growth frontiers for investors.

As the world’s eyes remain riveted on the West, where US President Donald Trump continues to surprise and shock with new pronouncements daily, a pocket of opportunity is widening in emerging markets.

Kenny Rabson, CEO of Discovery Invest, says many emerging markets look under-valued, and there are numerous bottom opportunities. “However, against a mixed backdrop for emerging markets, for instance, because of vulnerabilities from President Donald Trump’s trade policy changes, country-specific granularity is key.”

Rabson says although some markets could face challenges from proposed US tariffs and protectionist trade policies under the Trump administration, countries such as Saudi Arabia, which stand at the cross current of the transformative global forces, could thrive.

Read more: ‘Emerging markets’ are on the rebound but can South Africa leverage the momentum?

South Africa

South Africa’s momentum under the Government of National Unity has been encouraging. It has enjoyed 10 months (bar one weekend) of uninterrupted power supply as renewable energy capacity surged to 20% of the energy mix in just two years.

“Investors must remain aware of short-term disruptions but focus on the bigger picture: an economy that is stabilising, private-public partnerships are working, inflation is moderating and further interest rate cuts on the horizon,” Rabson says.

China

“A mitigating factor for China is that it has rapidly been diversifying its export markets. The US share of China’s exports has fallen from 20% in 2012 to just 13% in 2023,” Rabson says. In late 2024, China took steps to stabilise its economy and property market, and its corporates improved operations and increased shareholder returns.

India

Archie Hart, co-portfolio manager for emerging markets equities at Ninety One, believes India could overtake China to become the largest emerging equity market over the next three to five years.

A range of government policies implemented over the past few decades in India are now feeding through into economic growth and company profits.

“Perhaps one of the most significant but least talked about is the initiative to give everybody an identification number, effectively allowing 500 million people to become economically active. The scale of this rise in economic participation is staggering.”

In January 2009, India rolled out the biggest biometric ID programme in the world, called Aadhaar. This January, Aadhaar holders conducted more than 2.84 billion authentication transactions, highlighting the continued expansion of the digital economy in India.

Hart says India’s equity market is now trading at a growth premium. Expectations are high and valuations look stretched.

“Yet there are some great companies to invest in. Should a correction take place in the equity market in 2025, valuations should become more reasonable,” he says, adding that in the interim investors need to be highly selective and avoid getting caught up in the euphoria.

The tariff threat

However, some investment managers still have reservations. BlackRock managers caution that emerging markets are especially vulnerable to the growth hit from tariffs and any worsening in global risk sentiment.

“Mexico, with its heightened exposure to tariff impacts, is a key constituent in emerging market bond local currency indexes. We prefer to express heightened risks through fixed income, where we go underweight emerging market local currency debt. Tariff uncertainty could also drive volatility in currency markets and hurt returns in local currency emerging market debt,” BlackRock said in an investment note last week. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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The tariff threat