Q3 2025 Update from the Asia Trade Floor
Jingjing Huang: Welcome to our Q3 Asia Trade Floor update with portfolio manager Stephen Chang. We’ve been seeing ongoing shifts in the global landscape. Today, we’ll discuss how investors can navigate these changes.
Stephen, let’s start with China. The global order is clearly moving towards a multipolar structure, marked by tariffs and trade uncertainties. How is the outlook for China’s economy evolving?
Stephen Chang: We expect China’s growth to stabilise in the high 4% range in 2025, then slow to about 4% in 2026. The first half of this year saw growth close to 5%, but exports and household spending are expected to slow. To support growth, the government will likely boost infrastructure investment.
Inflation remains low, with weak construction demand and falling oil prices putting downward pressure on prices. Policy rate cuts are expected but somewhat delayed given still decent growth data in the first half – we expect a 20-basis-point cut in 2025 to 1.2%, and another 10 bps in 2026. Credit easing will support key sectors like technology, services, elderly care, and export-focused businesses.
Fiscal policy will use more central government debt to boost household and government spending, including infrastructure, consumer goods trade-ins, equipment purchases, and bank recapitalisation. Fiscal deficits are expected to rise above 12% of GDP in 2025, from 10.3% in 2024.
Jingjing Huang: How is China’s growth model changing in the longer term?
Stephen Chang: China is shifting from property and infrastructure-led growth to one focused on consumption, manufacturing, and technology. But high debt and an ageing population will continue to weigh on growth and inflation.
Monetary policy easing will include measures like buying bonds, as well as targeted credit support to key areas such as technology, property, agriculture, services consumption, and elderly care.
On the fiscal side, the central government will need to increase broad-based stimulus while addressing local government debt problems. Pension increases to help consumption and reforms of state-owned enterprises may improve fiscal effectiveness.
China remains a key global manufacturing hub. It is upgrading industries and reshaping supply chains, focusing on technology self-reliance and securing food and energy. It is also expanding trade with emerging markets to manage geopolitical risks.
Jingjing Huang: What does this mean for the rest of the world?
Stephen Chang: For emerging markets, China’s new growth model probably won’t bring many spillover benefits. In fact, it could mean more competition in local industries, which might lead to more trade disputes.
China is also facing a deflationary environment. With its huge manufacturing capacity seeing less demand from U.S. consumers, we can expect some downward pressure on global prices.
Jingjing Huang: Stephen, despite some challenges, we’re seeing a positive environment for many emerging markets. What’s driving this strong momentum?
Stephen Chang: Emerging markets are benefiting from a weaker U.S. dollar and shifting investor sentiment away from the U.S. This is leading to strong inflows into emerging market equities and local currency bonds. Many emerging economies have kept their debt at manageable levels, which helps them handle potential risks.
Many central banks are cutting interest rates to support growth. This is helping to create a virtuous cycle of growth and investment.
Meanwhile, the rise of digital currencies and stablecoins, which often hold U.S. Treasuries, is changing capital flows and currency management in emerging markets. This could reshape investment dynamics going forward.
Jingjing Huang: How will this reshape investors’ allocations?
Stephen Chang: There are strong opportunities across equities and fixed income outside the U.S., especially given the low ownership levels in these markets. The ongoing capital reallocation away from the U.S., supported by fiscal stimulus and a weaker dollar, sets the stage for sustained growth and attractive returns.
Jingjing Huang: Looking beyond Asia and emerging markets, how do you see the global economic outlook shaping up?
Stephen Chang: The global economy faces opportunities and challenges. Many central banks are shifting their focus to supporting growth through monetary policy rather than just controlling inflation. This is partly because fiscal space is limited due to high debt and deficits.
We remain positive on duration in fixed income, seeing value in medium-term bonds as central banks have more room to cut rates.
At the same time, geopolitical tensions and trade uncertainties persist. Investors must balance these factors carefully while seeking opportunities in sectors and regions benefiting from long-term trends like technological innovation and fiscal investment.
Jingjing Huang: What’s the key takeaway for investors as we look ahead?
Stephen Chang: Diversification is essential. With growth prospects uneven, investors should consider a broad range of markets and asset classes, focusing on quality and emerging trends. Staying flexible and aware of evolving risks will be crucial to navigating this complex environment.
Jingjing Huang: Thank you, Stephen. For a deeper dive into these themes and how to position your portfolio, be sure to check out our latest Secular Outlook, ‘The Fragmentation Era’, on pimco.com.
Disclaimer
Program recorded on 14 July 2025.
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