Templeton Developing Markets Trust Q1 2025 Commentary

2025-05-08 11:05:00 ET

Summary

• Emerging market equities rose in Q1 2025, driven by stock selection in China, India, and Brazil, despite volatility from geopolitical and tariff concerns.
• Alibaba's share price surged due to strong earnings and AI investments, while Prosus benefited from Tencent's performance but faced setbacks from acquiring Just Eat.
• Zomato's shares declined on slower growth and competition, but its market-share gains and potential in quick commerce remain promising.
• The outlook for 2025 includes expected volatility from US tariffs, with opportunities in Brazilian and Indian equities, and growth potential in AI for South Korea and Taiwan.

Key Takeaways

• Markets: Emerging market equities rose over the first quarter of 2025. Investor sentiment seesawed as fears of broad US tariffs gave way to temporary relief and optimism about delays and the possibility of a more targeted approach. Still, there was a hint of wariness over the impact of a trade war on global economic growth.
• Contributors: Stock selection in China, India and Brazil contributed to relative performance alongside allocations in India (underweight) and Brazil (overweight). By sector, stock selection in information technology, consumer discretionary and health care added to relative strength.
• Detractors: Stock selection in Hong Kong and South Africa detracted from relative results, as did a lack of exposure to Poland. In sector terms, stock selection in utilities and an underweight in materials detracted from relative returns.
• Outlook: A key difference we are experiencing as we move forward in 2025 is the certainty of more volatility in the times to come. Geopolitics and tariffs have dominated headlines, and EM equities have whipsawed in reaction to these developments. In our view as long-term investors, we balance this uncertainty with optimism in pockets of our investable universe.

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