In the longer term, emerging markets such as India are well positioned to benefit from mega-powers and compete with the US and China, according to a report from the BlackRock Investment Institute.
The investment manager prefers emerging markets over developed markets, especially those emerging markets that are countercurrent to mega powers like India and Saudi Arabia.
According to an article published by the institute earlier this year, India’s rapid growth rate underlines its economic rise and also highlights challenges ahead: “The super-charged digitalization that has revolutionized financial transactions, India’s favorable demographic trends and relative success in navigating a geopolitically fragmented world are brightening the world. the long-term prospects, we think.”
Competition between the US and China
In China, fiscal policy is turning supportive, but the threat of tariffs calls for caution. Competition between the US and China will intensify in 2025 as tariffs and policies aimed at decoupling strategic sectors, especially advanced technologies such as semiconductors, increase. China’s cheap low-carbon technology, especially electric vehicles, solar energy and batteries, is putting pressure on companies in other major economies, provoking a protectionist response.
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“China’s fiscal stimulus is not yet sufficient to address the constraints on economic growth, but we believe shares are attractively valued relative to DM shares. We are ready to run. We are cautious in the long term given China’s structural challenges,” the report said.
AI theme
BlackRock is overweight US stocks as the AI theme and earnings growth broaden. Valuations for AI beneficiaries are supported by technology companies that generate profits. Resilient growth and interest rate cuts by the Fed support sentiment. Risks include long-term interest rate rises or escalating trade protectionism.
“Some U.S. stock valuation metrics, whether price-to-earnings ratios or equity risk premia, look rich compared to history. But they may not tell the full story. The changing sectoral composition of the stock market reflects the transformation that is taking place. We think the AI mega-power will benefit US equities more and therefore we remain overweight, especially against international peers such as European equities,” the report said.
