Emerging markets offer stability and room for growth as investors shift from US dollar-denominated assets in the face of tariffs and economic uncertainties, according to a new report.

Global investors have been diversifying away from the US market since US President Donald Trump unveiled his worldwide tariffs in April. Despite a 90-day pause on their implementation, the appeal of US assets has waned significantly as reflected in the downgraded GDP outlook, US dollar depreciation, and weak stock market performance, HSBC Asset Management says in its latest investment outlook.

“The US has led the world economy in GDP, in profit and market performance, and in terms of the strength of the dollar,” says Joe Little, global chief strategist of HSBC AM.

“But many of those forces are being challenged, questioned, even reversing themselves. And this has opened opportunities for the other parts of global stock markets to continue the process of outperforming.”

Broader choices

Strengths in other markets, including Europe, China and India, now dominate investors’ attention as they seek to broaden the choice of safe assets in their portfolios. Their optimism is tied to the easing bias and strong policy stimulus in these markets.

In particular, China and India have strong demographics that could help reduce their reliance on exports.

The Asian fixed income market is also promising in terms of attractive yields and quality issuances. Opportunity can be found in investment-grade issuers spanning resilient sectors such as sovereigns, quasi-sovereigns and financials, but high-yield Chinese bonds are also gaining traction as investors await a stimulus package to boost the economy.

“Although Asia credits have the same yield levels as global peers, the much shorter duration makes them impervious to rising rate volatility,” says Alfred Mui, head of Asia fixed income investment at HSBC AM. “This kind of stability is exactly what investors look for in a challenging environment.”

Asian equities, particularly those domestic-oriented, also give comfort to investors. India has seen an influx of foreign investments on strength of its corporate balance sheets and revamped government spending, with the service sector performing particularly well.

In China, corporates have undertaken fundamental changes that have led to a significant improvement in their financial performance in the first quarter of 2025.

“On top of the expectation of earnings that has been recalibrated, return of equities have bottomed out, partly because corporates have been self-helping by cutting cost aggressively, do more share buybacks, deleverage and increase dividend payout,” notes Caroline Yu Maurer, head of China and core Asia equities at HSBC AM.

Pockets of opportunities are also spotted in the Hong Kong market, underpinned by growing mainland interest in the city’s property, utilities and real estate investment trusts. Southbound Stock Connect has seen a record inflow of US$80 billion year-to-date, which is expected to reach US$180 billion by year-end.