In this section, contributors share their views on economic and financial topics.

While many developed countries are struggling with high deficits, structural weaknesses in growth and ambitious valuations, numerous emerging markets are proving to be more stable in macroeconomic terms, more favourably valued, and more strategically indispensable than ever. Those who take a selective approach will find not only catch-up potential in China, India and other emerging markets, but also structural growth drivers with global relevance.

China: Growth figures despite macroeconomic challenges

China continues to be a rich hunting ground for growth companies. When looking at MSCI ACWI, more than 1/3 of the ‘growthy’ companies are from China (i.e. companies with 3Y forecasted revenue growth of >20% p.a.). Macro challenges such as property sector drag, soft consumer sentiment and geopolitical uncertainties remain, but two important pivots are supporting Chinese markets. 

«Grassroots innovation is gathering momentum, from advanced manufacturing to AI.»

First is a shift in domestic policy towards a decisive ‘pro-growth’ stance, with measures supporting consumption, capital markets, entrepreneurs and the private sector. This is an important shift compared to the 2021-2023 period. Second is that grassroots innovation is gathering momentum, from advanced manufacturing to AI. Moreover, valuations remain undemanding relative to the developed market: MSCI China 10.8x forward P/E vs MSCI ACWI 18.2x. However, as Chinese markets are dominated by retail flows, there are certain themes and stocks where valuations may be outgrowing operational progress. Active stock picking is essential. 

India: Macroeconomic potential with valuation risks

India as a macro story also has a long runway of growth ahead – GDP per capita is still less than $3,000. Recent labour law reforms also lay a good foundation for reigniting India’s potential in manufacturing. 

«The struggle for investors is that valuations remain high.»

Despite the exciting opportunity, the struggle for investors is that valuations remain high. Around 100 million first-time local investors have entered the market in recent years as improved digital infrastructure, from payment systems to low-cost data, has widened access, helping to propel equity markets and the share prices of small/mid-cap companies in particular, often despite limited fundamental improvements. 

Even after India’s relative underperformance versus other emerging markets in 2025, valuations in a large part of the market still look stretched. That makes us very selective in India: we prefer resilient business models at sensible multiples. And, for a global emerging markets portfolio, we are very aware that other emerging markets might offer more competitive investment opportunities. 

Three structural pillars of the upward trend

Overall, we remain constructive on the outlook for emerging markets as an asset class. Conditions are aligned for a continued bull market for EM.

Firstly, many emerging economies have become more resilient in macroeconomic terms. Current accounts sit at a decent surplus according to the IMF. Net export momentum is clear, as is the reduction of the reliance on foreign financing. This stands in sharp contrast to the US, where deficits have widened in recent years. For export-oriented emerging market economies, there are more and more reasons to reinvest their US dollar export earnings at home, in their own domestic markets. 

«Developing economies are becoming more central to our future.»

Secondly, global investor allocations to emerging markets remain low. Around two-thirds of internationally diversified portfolios are underweight in this segment, signalling considerable potential for catch up.

Thirdly, this happens at a time that developing economies are becoming more central to our future. EM companies focused on technology, especially semiconductor hardware, are key building blocks of the energy transition. Think of the battery producers in China and key mineral producers in Central and Latin America – these are central to innovation that we're benefiting from every day in the form of ecommerce, gaming, social media, electric vehicles and industrial robots. 

These aren’t speculative stories. The best of these companies are profitable, scaling, and operating in markets with decades of growth ahead. The types of companies we’re talking about in EM are increasingly not just catching up – they’re leading the development of new consumption patterns and new ways of doing business.

Qian Zhang is Investment Specialist at Baillie Gifford.

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