“Next generation consumerism” in on the rise, shifting from low-margin manufacturing to high-margin, innovation-led consumption.
Capital returns, particularly in the form of dividends, are gaining traction as management teams increasingly prioritise shareholder value.
Beijing has committed to make China the global leader in technology, and tech-savvy Chinese consumers could help achieve that goal.
Emerging markets present a dynamic and increasingly attractive investment landscape, driven by structural reforms, demographic advantages, and rapid digital transformation. Our investment teams see compelling opportunities driven by three key trends: consumer spending, capital returns, and technology. Drawing on insights from our Hong Kong-based investment team, the Henley investment team, and our ETF specialists, this article explores how we’re positioning across emerging market equities in 2025 and where we believe long-term value may lie.
Mike Shiao, CIO, Raymond Ma, CIO, Hong Kong and China team
We’re seeing the rise of “next-generation consumerism” in emerging markets. Driven by Gen Z and millennials, this trend emphasises emotional and identity-driven consumption. IP-based products, designer toys, and niche beverages are gaining traction, supported by firms with strong R&D and product differentiation. This marks a shift from low-margin manufacturing to high-margin, innovation-led consumption. Looking ahead, we see a “golden era” for Chinese IPs, with emotional resonance and innovation driving long-term growth.
Across Asia, the consumption story is broadening and undergoing a dynamic transformation, with India emerging as a key growth engine. India’s domestic demand remains robust, supported by a vast and youthful population and expanding middle class. The demographic dividend is fueling a consumption boom, particularly in sectors like digital services, travel & tourism, and affordable luxury. The Indian government has been proactive in supporting this momentum through tax relief and structural reforms. The initiative is expected to increase disposable income and stimulate consumption, particularly in rural and middle-income households. Elsewhere in Asia, economies like those in ASEAN, Taiwan, and South Korea each exhibit distinct consumption patterns, shaped by urbanization, rising incomes, and rapid digital adoption. These diverse drivers are contributing to a broader regional growth narrative, making Asia a compelling long-term consumption story.
Beyond the consumption story, DeepSeek’s cost-efficient AI model has reinforced China’s long-term potential in artificial intelligence (AI). Innovation and AI applications are now moving beyond traditional sectors, becoming more immersive and transformative across the real economy. These advancements are enhancing efficiency and expanding AI adoption in areas such as manufacturing, healthcare, and consumer services.
Funds to explore:
Invesco Asia Consumer Demand Fund
Asian and Emerging Markets team
A key source of confidence for international investors like us is the growing emphasis on capital returns. Dividends and share buybacks are becoming more common, particularly among internet giants like Alibaba and Tencent. Several holdings in our portfolio are delivering high single-digit or even double-digit total shareholder return yields, helping us meet our target of double-digit annualised returns, with earnings growth and valuation re-rating as potential upside.
Our Asia & Emerging Markets team maintains an overweight position in South Korea, Brazil, Indonesia and Thailand, with a focus on large internet platforms, life insurers, and consumer-related businesses. We invest where we believe the market has mispriced risk, often in areas clouded by investor fear, allowing us to capitalise on the gap between price and intrinsic value. We aim to buy companies for significantly less than our estimate of “fair value” in a 3-5 year time horizon.
Funds to explore:
Invesco Emerging Markets Equity Fund
Invesco Emerging Markets ex-China Equity Fund
Chris Mellor, ETFs
With a growing middle class, higher personal disposable incomes and a coordinated shift towards technology and other high growth industries, we expect global investors to increase allocation to Chinese equities. Many of these investors will choose broad market exposure, but those wanting to concentrate on segments with the potential for outperformance may want to consider funds that target technology — or technology-related industries to be more precise.
Beijing has committed to make China the global leader in technology. Supported by government financial incentives, companies domiciled in China are spending heavily on research and development to integrate artificial intelligence into applications for health care, finance and across consumer industries. Indeed, the tech-savvy Chinese consumer could play a major role in achieving Beijing’s goal, offering an enormous captive market for new products and services.
Technology sector funds are likely to miss out on many of the available opportunities in the broader theme, so a thematic approach could be a more compelling option.
A fund to explore
The Invesco MSCI China Technology All Shares Stock Connect UCITS ETF focuses on Chinese companies that are at the forefront of some of the most innovative technologies, including the internet and digitisation, mobility, autonomous technology, industrial automation and digital healthcare.
The ETF is passively managed, following a smart beta index constructed by MSCI1. The ETF invests in 100 China-based companies identified by MSCI for having the highest exposure to these themes. The weight of each constituent is adjusted so that those companies generating larger proportions of their revenues from these business activities are overweighted relative to their normal market-cap weighting. This weighting methodology is intended to increase exposure to the technology theme.
This ETF provides exposure to the broad technology theme without being limited by sector constraints. For an indication on the composition, the largest sectors currently represented in the ETF are consumer discretionary (34%), information technology (22.4%) and communication services (20.8%).
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