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Three things we are thinking about today

China Golden Week: China celebrates an extended eight-day golden week from October 1 to October 8, with most offices and factories closed. Historically, golden week is a period for increased travel and consumer spending. A leading Chinese online travel agency recently reported a 45% increase in domestic travel booking compared to the prior year.1 Regional governments have been rolling out promotions to encourage increased consumer spending on both experiences and goods. In combination with Singles Day in November, there is optimism that Chinese consumer spending may start to recover following a subdued 2024.  

India tariffs: US President Trump recently announced 100% tariffs on pharmaceutical imports from companies that do not have a US manufacturing presence or plans to start manufacturing in the United States. As the United States is the world’s largest drug market, there were initial concerns over the impact on India given one-third of its pharmaceuticals are exports exported to the United States.2 However, the risk to exports was seemingly reduced when the Trump administration clarified generic drugs are exempt. A majority of India’s pharmaceutical exports to the United States are generic.  

Year-end rally: Historically, September has been one of the weakest months for global equities, with a return of -1.0% for the past 10 years.3 However, 2025 bucked the trend. The MSCI All Country World Index rose 3.7%, and emerging markets were leaders, with a return of 7.2%.4 The key question for investors is whether this optimism will continue in the fourth quarter. “Fear of missing out” remains a theme, so we think there is scope for further fund inflows to support equity markets. Emerging and international equities appear poised for further gains if the US dollar remains weak, given the valuation discount with the United States.  

Outlook

Unlike most equity markets, Brazilian equities shrugged off threats of higher tariffs from the United States. Our Latin America (LatAm) equity portfolio manager summed up his views: In terms of expectations, he feels that Brazil is at an inflection point. Brazil’s projected 2025 inflation rate is finally moving downward, bringing forward expectations for interest-rate cuts to December 2025 or the start of 2026. This coincides with some positive takeaways the team’s Brazil-based analysts gleaned from their company meetings and conferences.

Energy: Sales at higher prices

 One of our research analysts attended a conference in Sao Paulo, where the utilities sector was discussed in detail. The main topics were curtailment and energy prices.

Companies expect energy curtailment to stay high for the medium term. Although there could be a small reduction after three years, curtailment seems here to stay, and companies are now factoring this into their investments. From our conversations with companies in the sector, we estimate that this stands at 10% for wind projects and around 15% to 20% for solar. This marginal increase in energy cost has led to an increase in energy prices. 

Our analyst highlighted an energy-generation company as a potential investment opportunity,  noting that the company has a lot of uncontracted energy. This means that this energy can be sold at higher prices in the future, which gives us a positive message.

Logistics: Next-best alternatives

A meeting with a logistics company revealed that price hikes are not in its plan due to the availability of options in the market. The company said it will focus on gaining efficiency instead to reduce the pressure to increase prices. We are already seeing early shoots of this strategy’s success—in the second quarter of 2025 alone, earnings before interest, taxes, depreciation and amortization (EBITDA) improved 6% from a year ago. Continued controlled overall cost dynamics was seen as the main driver. Efficiency gains from 2023 to 2025 so far have been touted to the equivalent of the capacity of a full port terminal.

In short, the company is working to optimize capacity utilization with reasonable prices. Methods include the simultaneous handling of different types of crops, increasing the number of car trains, and expanding the usage of semi-autonomous train operations.

We believe that a bottom-up approach is key to unearth companies set to benefit from these driving forces. As fundamental, high-conviction investors in structurally competitive and well-placed businesses, we also believe our on-the-ground presence and experience helps us uncover investment opportunities that can translate into a well-diversified portfolio with low directional bias.

Market review: Third-quarter 2025

EM equities rose in the third quarter of 2025. The US Federal Reserve resumed its easing cycle in September after a long pause, and signaled two more rate reductions this year. This dovishness raised investor sentiment globally, fostering hopes for better economic growth. For the quarter, the MSCI EM Index returned 10.95% while the MSCI World Index rose 7.36%.5

Equities in the emerging Asia region rose, with most country benchmarks advancing. A technology rally unfolded in China as technology companies reported artificial intelligence (AI) product rollouts, fostering confidence in AI corporate expenditures. Chinese semiconductor firms benefited from the government’s intent to strengthen its domestic semiconductor industry. Equity markets in South Korea and Taiwan benefited from AI-related sentiment, with the former maintaining its upward momentum with South Korea’s confirmation not to lower its capital gains tax threshold for equities.

Indian equities were an anomaly as they declined for the period. Information technology stocks suffered from a large fee hike in H1-B, or non-immigrant visas in the United States, which would complicate Indian information technology companies’ operations in the United States. The government’s overhaul of the goods and services tax structure, however, caused a broad-based rally and helped to overcome some weakness.  

Equities in the emerging Europe, Middle East and Africa region rose despite tensions in the region. On a regional level, geopolitics was factored in, with the continuation of unease in Gaza, Israel and Iran raising the region’s political risk premium. A weaker oil backdrop also capped gains. However, the lowering of interest rates in the United States helped the region to advance as a whole. Saudi Arabian stocks rallied on plans to relax the kingdom’s foreign ownership rules.

Equities in the emerging LatAm region gained. Brazil’s central bank opted to keep interest rates unchanged, but it did not rule out the resumption of a hiking cycle if appropriate. The benchmark interest rate now hovers at a near two-decade high of 15%. Conversely, Mexico’s central bank reduced interest rates for the 10th straight meeting to 7.5%.

Endnotes

  1. Source: Trip.com.
  2. Source: “Market share of leading 10 national pharmaceutical markets worldwide in 2024.” Statistia.com
  3. Source: Source: Bloomberg; MSCI All Country World Index. Gross returns. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.
  4. Source: MSCI; MSCI AC World Index and MSCI EM Index. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.
  5. Ibid.
     

Index Definitions

Past performance is not an indicator or a guarantee of future performance. Indexes are unmanaged and one cannot invest directly in an index. Important data provider notices and terms available at www.franklintempletondatasources.com

  1. The MSCI All Country World Index is a free float-adjusted, market capitalization-weighted index designed to measure the equity market performance of global developed and emerging markets.
  2. The MSCI Brazil Index is designed to measure the performance of the large- and mid-cap segments of the Brazilian market.
  3. The MSCI China Index captures large- and mid-cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g., ADRs).
  4. The MSCI EM Asia ex Japan Index captures large- and mid-cap representation across two of three developed markets (DM) countries (excluding Japan) and eight emerging markets (EM) countries.
  5. The MSCI EM EMEA Index captures large- and mid-cap representation across 11 emerging markets (EM) countries in Europe, the Middle East and Africa (EMEA).
  6. The MSCI EM Latin America Index captures large- and mid-cap representation across five emerging markets (EM) countries in Latin America.
  7. The MSCI EM EMEA Index captures large- and mid-cap representation across 11 emerging markets (EM) countries in Europe, the Middle East and Africa (EMEA).
  8. 7. The MSCI EM Index is a free float-adjusted, market capitalization-weighted index designed to measure the equity market performance of global emerging markets.
  9. The MSCI India Index is designed to measure the performance of the large- and mid-cap segments of the Indian market.
  10. The MSCI Mexico Index is designed to measure the performance of the large- and mid-cap segments of the Mexican market.
  11. The MSCI South Korea Index is designed to measure the performance of the large- and mid-cap segments of the South Korean market.
  12. The MSCI Turkey Index is designed to measure the performance of the large- and mid-cap segments of the Turkish market.
  13. The MSCI World Index captures large- and mid-cap representation across 23 developed market countries.


WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Equity securities are subject to price fluctuation and possible loss of principal.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.

The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.

There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.

WF: 7011216

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