JPMorgan warns of tough year ahead for emerging markets in 2025

JPMorgan's annual outlook warns that emerging markets face a turbulent 2025, with significant uncertainty stemming from policy shifts in the United States and ongoing challenges in China.

The bank predicts that growth across emerging markets will slow to 3.4 per cent in 2025, down from 4.1 per cent this year.

Excluding China, growth is expected to moderate further to 3.0 per cent, from 3.4 per cent in 2024.

The outlook highlights how us policy changes could trigger a negative supply shock, creating ripple effects across emerging economies.

With a stronger dollar and higher rates on the horizon, emerging-market bond funds are projected to face outflows between $5 billion and $15 billion in 2025.

JPMorgan's report outlines a challenging year for emerging-market fixed income.

The return of a Republican-led us government under Donald Trump is anticipated to bring tariff policies, geopolitical shifts, and domestic changes that could strengthen the dollar and elevate interest rates.

These factors will weigh heavily on sentiment towards emerging markets, particularly their sovereign debt.

Despite these risks, the bank forecasts a 4.3 per cent return for hard-currency sovereign debt by the end of 2025, a decline from the 6.9 per cent return expected for 2024.

The bank's debt issuance forecast shows a slight decline in hard-currency sovereign gross issuance to just below the 2024 level. However, rising debt amortizations mean net financing will drop significantly.

On the market-specific front, JPMorgan has removed its overweight recommendation on the Dominican Republic's sovereign debt, Although it expects the country to attain investment-grade status within four years.

Additionally, the bank has turned underweight on Indonesia's local rates, signalling caution as emerging markets navigate a challenging year ahead.

(With inputs from agencies)