Global investors are increasingly reallocating their assets from China toward emerging markets like India and Japan, driven by perceptions of stronger growth potential. This shift, detailed in a recent report by Franklin Templeton, reflects a changing landscape in global investment strategies.
According to Dina Ting, Head of Global Index Portfolio Management at Franklin Templeton, investors are actively seeking areas with better opportunities. This strategic reallocation is explored in the report titled "The 2025 ex-US investment opportunity set," highlighting a move away from China, which is experiencing a moderation in its economic growth.
India has emerged as a prominent investment destination, benefiting from its young population, expanding infrastructure, and potential as a future manufacturing powerhouse. This influx of capital underscores the country's favorable economic outlook and attractiveness to international investors.
China, on the other hand, is experiencing a slowdown in its GDP growth after decades of rapid expansion. While its economy grew by 5.2% in 2023, projections from the International Monetary Fund indicate a decrease to 4.5% by 2025. This economic moderation contributes to investors’ shifting interests.
In contrast, Japan's market has attracted attention due to increasing shareholder-friendly policies. Companies are boosting dividends and share buybacks, making Japanese equities more appealing. Furthermore, the country's expanding role in the semiconductor supply chain, driven by the artificial intelligence boom, has further enhanced its attractiveness. Franklin Templeton's FTSE Japan ETF (FLJP) has seen a 5.9% year-to-date increase, though currency-hedged options like the Franklin FTSE Japan Hedged ETF (FLJH) have delivered even stronger returns.
The investment shift has also benefited Taiwan, which saw its stock market outperform the broader MSCI Emerging Markets Index. The semiconductor sector continues to be a primary growth driver for Taiwan, with expectations of continued growth in global chip sales due to AI and 3D technology advancements.
While U.S. investments remain essential, the report concludes that the broadening global rally and shifting geopolitical dynamics make international diversification increasingly crucial for portfolio stability and growth.
