Potential growth in emerging market stocks may ignite our platform.
Over the next five years, Asian emerging market equities and bonds, with a focus on Vietnam, India, and China, present a complex but appealing investment landscape. The region is expected to contribute significantly to global economic growth, despite a relatively less accommodative monetary policy.
### Expected Performance
India's growth is forecasted to soften slightly from 6.5% in FY24/25 to about 6.3% in FY25/26, reflecting a balance between supportive monetary easing, regulatory improvements, and external global economic uncertainties. The country's continuing demographic advantage and digital economy expansion underpin potential for sustained equity market gains. However, global economic weakness and policy uncertainty pose risks, meaning equity performance might be steady but with bouts of volatility.
Vietnam's integration into global supply chains and economic reforms suggest moderate to strong equity growth potential. ASEAN markets, including Vietnam, show promising early-stage market optionality, albeit with liquidity constraints that may temper short-term returns. The region benefits from diversification trends and growing ETF product offerings, pointing to improving market depth and investor access.
China's equities have been challenged by regulatory tightening and economic rebalancing. Nevertheless, China remains a critical equity and bond destination in Asia-Pacific ETFs, with active management approaches growing to target upside amid volatility. Bonds, especially government and quasi-sovereign, offer yield opportunities given Chinese monetary policy adjustments and interest rate environment.
### Investment Opportunities
Equity ETFs dominate the Asia-Pacific ETF market, comprising 63.2% market share in 2024, with active ETFs growing rapidly (12.42% CAGR) and offering index-beating potential. This trend suggests investors can harness better performance in emerging markets through active strategies. Fixed-income ETFs are a significant part of Taiwan’s market and increasingly accessible for emerging Asia, supplying cheap duration exposure with liquid intraday pricing.
The Asia-Pacific ETF market is expected to grow from USD 1.70 trillion in 2025 to USD 2.36 trillion by 2030, expanding at nearly 7% CAGR, implying more diverse and accessible exposure to Asian emerging markets including Vietnam, India, and China. Commodity-linked ETFs and alternatives are also gaining, acting as inflation hedges and portfolio shock absorbers, which may be relevant for investors worried about inflation risk in these fast-growing economies.
### Summary Table
| Country/Region | Growth Outlook (2025-26) | Equity Investment Potential | Bond Investment Perspective | |----------------|--------------------------|---------------------------------------------------|------------------------------------------------| | India | ~6.3% GDP growth | Steady growth supported by reforms, cautious due to global risks | Attractive for yield, benefits from monetary easing | | Vietnam/ASEAN | Moderate growth, liquid constraints | Emerging market optionality with improving ETF access | Liquidity challenges remain, but improving access | | China | Mixed due to policy uncertainty | Active management ETFs gaining traction, selective opportunities | Government/quasi-sovereign bonds offer stable yield |
### Conclusion
Investors targeting Asian emerging market equities and bonds can expect steady to moderate growth in India and Vietnam, with China presenting more nuanced risks and opportunities, favoring active management. The expanding Asia-Pacific ETF market and growing sophistication in fixed-income products enhance accessibility and diversification potential over the next five years. Strategic allocation blending equities with alternative and fixed-income ETFs may best capture upside while managing market volatility.
This outlook balances optimistic growth prospects in Asia’s key emerging markets with caution around liquidity and policy risks, offering promising but selective investment opportunities. Chinese government bonds offer the best risk-return profile, according to the asset manager. Interesting investment opportunities may be found in the investment-grade space in Asian emerging markets. Pictet Asset Management expects the situation to reverse in the next five years, with yields reflecting the region's dynamism. They predict average annual returns of around 11% in USD for these stocks. The region has a current account surplus. China has the renminbi, which could soon challenge the USD's dominance in the global financial landscape. Many challenges in the region, such as China's debt pile, deteriorating demographics, climate change, and weak governance, could be overcome through a combination of technology and innovation.
Other investment avenues beyond equity and bonds in Asian emerging markets include technology and finance sectors. The growing digital economy in India underpins potential for technology gains, and Vietnam's integration into global supply chains provides a promising outlook. Additionally, active management approaches in China's technology and finance sectors could present selective opportunities, especially in the face of regulatory changes and economic rebalancing.
