These are of course different cases, but I am definitely optimistic in both. I would like to challenge the view that it has not been possible to make money in China in recent years. It is true that it has been a great challenge to generate money in the last three years, because the stock market indices in China have corrected massively. However, last year was a very good stock market year for China, and was even among the top-performing markets in 2024. In dollar terms, the market rose by around 20%. This was not a steady rise, but accelerated when the government announced stimulus measures in the third quarter. DeepSeek also provided a boost. With the election of Donald Trump, this was then scaled back again somewhat.

Yes, China is once again one of the best markets this year. China already seemed interesting at the beginning of last year if you looked at the earnings expectations at that time. Valuations were at the lower end of the historical range. Nevertheless, the sentiment for China was so bad that if you wanted to talk to investors about China at the end of 2023, beginning of 2024, you were often simply blocked. After the three-year bear market, sentiment was absolutely down. It was like a rollercoaster, because three years earlier sentiment was still really euphoric, so investors were often asking at that point, should I invest in anything other than China?

It is a very diversified stock market and of course there is a lot of economic growth. We have a highly innovative economy there, not only in the field of artificial intelligence, but also in solar energy, renewable energies in general, and in many other areas. You can always find companies to invest in. Even after the small rallies we have seen in China, the valuation level is still below the long-term average. The earnings outlook is also good, so there should still be room for improvement. Especially as domestic Chinese investors have not really made an appearance yet. They have not yet returned to the stock market on a large scale. If Chinese investors invest more in their own stock market again, this could be the trigger for a real rally.

There are several influencing factors. The property crisis has hit sentiment. The Chinese have a lot of money in bank accounts, more than in the past, and much more than in the stock market. Of course, many people are now also keeping their hands off the property market. The last few years have made the Chinese more cautious. For a long time, people thought that property prices would only go up. That was a fundamentally wrong assumption and quite a traumatic experience. Then there was the coronavirus crisis, which caused the Chinese population to suffer more than Western populations due to prolonged lockdowns. Both have driven up the tendency to save in safe investments. We're not quite out of it yet, but the bottom always comes at some point. We could well be close to it.

The Chinese government wants to strengthen the consumer climate. It also wants to make the stock market more attractive for investors. This is important because the stock market was originally particularly attractive for companies that wanted to place shares there. Shareholder rights and interests were not so much in the foreground. That has changed since the beginning of last year. There is now a new regulator who wants to ensure that the Chinese stock market is interesting for savers and that investors feel comfortable and safe there. There is more control over listings, and incentives are being created to ensure that there are more dividends and a more shareholder-friendly policy in general, because a market that has been down for three years is of course not a good testimony to the government's economic policy. These are all developments that give me cause for optimism that we will see a turnaround at some point. Under no circumstances would I write off the Chinese stock market in the long term.

I don't think China wants to get into a hot war with the USA. It barely took a minute for the Chinese government to respond to the Trump administration's tariffs with its own tariffs against the USA. These tariffs were targeted at areas that hurt the Americans, particularly in agriculture. They don't want to be intimidated and many of Donald Trump's policies are designed to instil fear. In addition, there is now less dependence on exports to the USA than was the case under the first Trump administration.

If I look at our emerging markets portfolio, we already have a very strong focus on technology. We already built up our positions in companies such as Alibaba and Tencent last year. These companies have very favourable valuations and extremely healthy balance sheets. In addition, there is a change in the Chinese government's attitude towards internet and technology companies. The Chinese government recently held a meeting with technology entrepreneurs, including Jack Ma from Alibaba. In doing so, the government has shown and emphasised how important these entrepreneurs are. After the regulatory frenzy four years ago, the government has realised that they need these entrepreneurs, they need this drive from people who want to develop things and earn money. That is an important sign and makes this sector even more interesting.

26 September last year was the peak of the Indian market. Since then, we have seen a correction of around 20%. There were already tangible triggers for this correction. From the third quarter onwards, there was a less positive earnings trend for Indian companies. As a result, profit expectations in the Indian market have been adjusted downwards. This has led to a price correction. The lower profit growth is due to a slowdown in the economy. This is not entirely untypical for an election year, because election years are always characterised by uncertainty. Investors often put the brakes on a little, especially when it comes to big, far-reaching decisions. This has also happened in India.

We have seen more activity again since the end of the year and think that this should also be reflected in the company results and growth rates. The results for the first quarter, or the second quarter at the latest, should show an upward trend again. We recently had a correction in earnings forecasts of around 7% and corrections in the market of 20%. Valuations have therefore become more favourable, especially for large caps. The large cap sector was never as overvalued as small caps and mid caps. The correction has now led to attractive prices. We have already actively reduced our share in the small and mid cap sector in India over the course of the last year and at the same time increased the large cap sector.

We are talking about an economic slowdown here. This is not a recession. We still have growth rates of around 6%. And we think that this will stabilise at six and a half, 7% in the medium term. In the long term, we don't see any change in the trends. The government is continuing to implement reforms. We continue to see an expansion of the infrastructure and an improvement in the framework conditions.

Some attention has now also been paid to the consumer. Employees with an income of up to 15,000 dollars per year no longer have to pay any tax at all. That's quite a lot, because the typical employee in India earns 10,000 to 12,000 dollars. For the urban middle class in particular, this is of course a relief. Non-basic consumption in particular should benefit from this.

We are most exposed to the consumer discretionary sector and also the healthcare sector. There are many hospital operators in India that are listed on the stock exchange and we are invested in a few selected ones. Higher value healthcare services have a very high growth potential in India. Especially if you get more money when you get a job or have health insurance, these are expenses that are prioritised.

Argentina and Milei are never boring. After he came to power, there was a rally on the Argentinian stock market. Prices have risen by almost 150%. Since the beginning of the year, the curve has been going down again. We have seen a correction of just under 25% and I don't see a bottom forming yet. We may have to watch the market a little longer. But Argentina is not an emerging market in the traditional sense. Argentina was removed from the MSCI Emerging Markets Index a few years ago. And the country has not even been included in the Frontier Markets Index, but is floating around as a standalone index in the MSCI universe. The Argentinian peso is pretty overvalued. We'll have to see how that develops.

Staying in South America, you can see that the Brazilian market has recovered somewhat this year, particularly due to the recovery of the Brazilian real. And Brazil is also one of the countries in our emerging markets portfolio where we are overweight. We find comparatively very favourable valuations in the Brazilian market. At the same time, the companies are healthy. Dividends are currently the highest in Latin America and also the highest in comparison to the past. So there is definitely potential there.

Mexico of course is dealing with the stress caused by Donald Trump and the tariffs. The US and Mexican economies are extremely closely integrated. Can these tariffs be enforced and maintained at all? The question of whether this is possible in the long term must be asked. The Mexican market is quite attractive if you look at it in a historical comparison. Very healthy companies that are not only active in Mexico. In many cases, they have also acquired companies in the USA and the rest of Latin America over the last 20 years.

Claus Born is Senior Vice President and Institutional Portfolio Manager for Franklin Templeton Emerging Markets Equity, based in the Frankfurt office. Born has more than 20 years of experience in emerging equity markets. Until 2014, he was a member of the portfolio management teams of the Latin America and Frontier Markets strategies.