Written by Chris Ayton
Despite ongoing political and geopolitical strife in Europe, the US, and elsewhere, last week was generally a positive one for both equity and bond investors as markets focused more on the growing belief that, due to a slowing jobs market and sufficiently benign inflation reading, the Federal Reserve in the US will be able to cut interest rates a bit faster than previously expected. The MSCI All Country World Index of global equities ended the week up +1.5% and is now up over +8.3% this year. In fixed income markets, the Bloomberg Global Aggregate Index was up +0.2% in GBP Hedged terms over the week and is now up +4.0% in 2025 so far.
Emerging Markets have been enjoying a bit of a renaissance and as measured by the MSCI Emerging Markets Index, were up another +3.7% last week. This takes the index to +16.5% for the year-to-date. A weakening US Dollar, which is what we have seen this year, is generally considered good for Emerging Markets but, as ever, the underlying countries are far from homogeneous. The volatility in US tariffs has created great uncertainty, and there has been a huge divergence of returns across the constituents that make up the broad Emerging Markets Index. For example, Korea’s index is up over 40% this year, aided by an unusual bout of political stability, a number of technology related companies benefitting from AI expenditure and also a theme known as “value up” which is a government driven drive to force badly managed or in some cases, corrupt companies, to manage their business for the benefit of their shareholders. Although at a much earlier stage, there are hopes that this can drive a genuine change in corporate governance in Korea, similar to that we have observed in Japan in recent years.
While Korea has been enjoying its time in the sun, a previous market darling, India, has seen its MSCI Index fall by more than 7% in 2025. Economic growth in India has continued to be solid, with GDP forecasts approaching 7% in real terms for 2025. However, unlike other emerging market currencies, the Indian Rupee has weakened sharply, depreciating over 10% against Sterling this year, and many equities have been hit as concerns have mounted over the impact of punitive US tariffs, which were recently increased from 25% to 50% as punishment for India purchasing large amounts of discounted Russian oil. President Modi has been trying to offset the economic impact of US tariffs with a round of domestic stimulus, including a recent cut in the Goods & Services Tax (the Indian equivalent of VAT). However, with equity valuations having started the year at historically elevated levels, international investors have been taking a more cautious stance. Indeed, last week it was reported by Goldman Sachs that foreigners have sold $28bn of Indian equities over the last year.
If we look back one year ago, Indian equities were universally loved, and China was widely detested with investors regularly asking us whether China’s stock market was “investible” anymore. Since this point, MSCI China has outperformed MSCI India by nearly 70% (MSCI China +56.5%, MSCI India -12.5%). This type of volatility within a backdrop of ongoing tariff-related uncertainty is why within our Multi-Asset Blend Funds we choose to primarily utilise active managers within Emerging Markets, some of whom seek out the highest growth companies in Emerging Markets and others who look for hidden value where others aren’t looking. It is interesting to us that our primary “value” oriented manager in Emerging Markets that increased its China allocation when it was unloved, has started dipping their toes into India. However, government policy and standards of corporate governance across Emerging Markets remain volatile, and astute company selection and prudent diversification by country and investment style remain key when seeking to capitalise on the plentiful opportunities in these ever-inefficient markets.
All performance figures are stated in Sterling terms, unless otherwise specified.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 15th September 2025.
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