Green shoots in Emerging Markets? In this month’s edition, Dan Moradi, our Portfolio Manager, Listed Products, takes a look at Australian equities, as well as a detailed look at China and emerging markets equities.
Key Messages for Investors
- At the headline level, ASX100 corporate earnings grew 2.5% in FY25, dragged lower by low growth from the Banks and Resources.
- EPS revisions in Australia have been negative year to date (YTD), on the back of lower commodity prices.
- Valuations for Australian equities remain elevated, while growth expectations remain subdued.
- Looking ahead to FY26, earnings are currently expected to grow by 5.8%, however, this is largely dependent on commodity prices.
- After years of weak relative performance, Emerging Market (EM) equities have outperformed Developed Market (DM) equities for three consecutive quarters this year, by a combined 11.1%.
- This has been driven by the ‘New Economy’ sectors in China, supported by Artificial Intelligence (AI) and favourable government policy.
- Looking ahead, consensus earnings estimates for EM have remained stable YTD, with current forecasts for EPS growth of 13.6% in 2025 and 14.4% in 2026.
- The optimistic investment outlook for EM is still evolving. However, to build confidence, more evidence is needed to show that China’s recovery can extend beyond specific sectors.
- Overall, risks remain broadly balanced from here, with risks to both the upside and downside. Remaining close to our Strategic Asset Allocation.