Chetan Sehgal, Portfolio Manager of Templeton Emerging Markets Investment Trust (TEMIT), shares his insights into emerging market performance in Q1 2025—highlighting the impact of shifting geopolitics, US tariff policy, and sector-specific resilience in the face of global volatility.
Emerging market (EM) equities declined marginally over the first quarter of 2025. Investor sentiment seesawed as fears of broad US tariffs gave way to temporary relief and optimism about delays and the possibility of a more targeted approach. Still, there was a hint of wariness over the impact of a trade war on global economic growth. For the quarter, the MSCI EM Index-NR returned -0.13%, while the MSCI World Index-NR returned -4.71%, both in net UK-sterling terms.
The emerging Asia region collectively fell during the quarter. Taiwanese equities plummeted as Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, announced its plan to invest US$100 billion in the United States, leading to investor concerns about higher costs. Indian equities rallied in March, but earlier declines led to an overall decline for the first quarter. Corporate earnings in India and sluggish consumption had initially disappointed investors; however, better-than-expected macroeconomic data, including gross domestic product and inflation, improved market sentiment.
Chinese equities advanced on the back of continued stimulus measures from China’s regulatory authorities. The Chinese government’s focus on technology was viewed by many investors as signs of support for the sector, sending technology stocks higher. China also revealed plans to boost consumption across sectors. South Korea’s equity market got a leg up from Samsung Electronics, the country’s most valuable company by market capitalisation, as it affirmed to improve shareholder value.
The emerging Europe, Middle East and Africa (EMEA) region’s stocks advanced. The quarter kicked off with hopes of abating geopolitical tensions. An initial ceasefire deal between Israel and the Hamas militant group as well as peace negotiations between Russia and Ukraine took place. These subsequently fell through.
Equities in the emerging Latin America region rose. Delayed imposition of US tariffs on Mexico’s exports led to gains regionally. There was also optimism over the possibility of the United States potentially considering some exemptions. Mexico’s economy minister expects to increase the number of compliant companies exporting to the United States. This could help to temper any aggressive deterioration in the trade environment between Mexico and the United States.
Outlook
A key difference we are experiencing as we move forward in 2025 is the certainty of more volatility in the times to come. Geopolitics and tariffs have dominated headlines, and EM equities have whipsawed in reaction to these developments. In our view as long-term investors, we balance this uncertainty with optimism in pockets of our investable universe.
In light of US President Donald Trump’s “Liberation Day” announcement shortly after quarter-end, in which he declared sweeping new tariffs on the goods of more than 180 countries and territories, global equities experienced significant volatility and may continue to face considerable turbulence. Global supply chains are now disrupted, and economies will take time to recover following this shock. In our view, across EMs, with the notable exception of the electronic manufacturing industry, many listed companies should not be significantly impacted.
An apparent objective of US tariffs is to encourage the return of production to the United States. However, we think the differential in wages between the United States and EMs is too large to be sustainable in the long run. The US government, in our view, could soon realise that tariffs alone will not be able to achieve its objective; it will need other solutions to turn around its manufacturing sector.
The outlook for Brazilian equity appears to us to be on the mend. While our hopes for an interest-rate cut have now been delayed, we are also bracing for interest-rate hikes in the near term. Taking a longer-term view—as is our investment approach—this may lead to a reduction in the country’s high inflation rate.
With the correction of the Indian equity market, we have been able to seize opportunities both ways. While we have trimmed our positions on companies that have exhibited strong share-price performance—for instance, in our Indian bank holdings—we have also been able to relook at some companies. We do, however, still maintain a highly selective approach in Indian equities.
While investor concerns about AI monetisation linger, AI remains a strong growth area. We believe AI growth should be beneficial for South Korea and Taiwan, which are home to several large semiconductor companies that are key to driving AI development. This has flowed through to Chinese internet companies, which have benefitted as they progress with AI.
Chetan Sehgal
