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April 27, 2025
Candace Browning, Head of BofA Global Research
What happens in D.C. doesn’t stay in D.C. The BofA Securities Small Talks Symposium revealed a surprisingly positive outlook for emerging markets despite recent global growth downgrades. As trade talks progress, some U.S. firms may benefit from more access to India’s e-commerce market, while S&P 500 companies are adapting to the new tariff reality.
Earlier this month, BofA hosted its flagship Global Emerging Markets Small Talks Symposium in Washington, D.C.
The outlook for emerging markets (EM) was better than anticipated across 120 meetings with over 400 clients and 20 Finance Ministers/Central Bank Governors. Investors were generally more concerned about the U.S. than the rest of the world, but a growing consensus is that the Fed will hold rates until there is more clarity on inflation. Participants also expressed some concern over China, but generally expect more stimulus. On trade, there was a sense that China will wait to negotiate until the U.S. feels some pain. For EM investors, a weaker dollar should benefit EEMEA while low trade war exposure and political change can bolster Latin America. Positioning in EM assets remains light but many expect to add local debt exposure once the outlook for U.S. risk assets is more clear.
Another takeaway from the Symposium: tariffs may have peaked, but de-escalation could be bumpy.
Higher trade uncertainty prompted our global economists to lower their GDP (gross domestic product) outlook by 30bps (basis points) to 2.8% in 2025 and by 20bps to 3% in 2026. About one-third of the downgrade reflects weaker U.S. growth expectations, with 2025 forecasts cut to 1.5%. Despite the slowdown, our U.S. economists do not expect a recession. In China, GDP forecasts fell to 4% this year and 4.2% next year, well below the official target. The greatest hit from the tariff shock could arrive in 2Q25 for China, pushing growth negative on an annualized basis. Head of Global Economics Claudio Irigoyen expects a U.S.-China trade deal in the coming months, with effective tariff rates on China converging around 50%. Elsewhere, growth forecasts for Europe were trimmed by 10bps in 2025 and 2026, while Japan’s economy is expected to expand just 0.1% this year, a 0.9% downgrade.
With tariffs front-and-center, all eyes are on potential negotiations. Head of Asia Telecom & Internet Research Sachin Salgaonkar recently highlighted news that the Trump administration intends to press India to give online retailers full access to its e-commerce market.
Currently, India allows U.S. e-commerce companies to operate only as online marketplaces, which the administration considers a “non-tariff barrier”. New rules could help U.S. firms shift to the first party model and grow “high velocity” categories like consumer packaged goods. India’s e-commerce market has immense potential with just 9% penetration vs 24% in the U.S. and 33% in China. India’s retail market is expected to hit $1 trillion in 2026 as incomes rise—per capita income has grown 8x since 2004 and is expected to grow another 2.5x over the next 10 years.
43% of S&P 500 earnings have been reported so far.
Our U.S. Equity Strategy team says EPS (earnings per share) is tracking a 9% beat, while revenue has come in just 2% above expectations. 64% of companies beat on EPS, just shy of the post-week 3 historical average but notably weaker than last quarter’s 71%. Head of U.S. Equity and Quantitative Strategy Savita Subramanian notes that the Earnings Revision Ratio (# of upward vs. downward revisions) is 0.3x month-to-date, close to a record low. But bottom-up consensus EPS of $266 has been cut by just 1.5% in April and still implies 10% year-over-year growth while top-down strategists expect 7% growth. Amid rising trade uncertainty, earnings commentary points to a deferral of big decisions like personnel changes and capital commitments. Corporates are also adapting despite evidence of weaker sentiment. Savita’s Tariff Tracker shows more plans to mitigate tariff impacts with pre-ordering, sourcing/production shifts, expanding domestic production, cost cutting, and price increases.
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Claudio Irigoyen, Head of Global Economics, BofA Global Research
The usual suspects all linger on Trump's endgame
Last week, we hosted our flagship Small Talks Symposium around the IMF (International Monetary Fund)/World Bank Spring meetings. The mood was somewhat better than anticipated, in particular on the EM (emerging markets) outlook. Investors were more concerned about the U.S. than the rest of the world. Although there is no agreement on whether the tariff shock will imply a mild recession or stagflation, it is becoming more consensus that the Fed might keep rates on hold given inflation uncertainty. Many think that the damage is already done for capex and supply chains, U.S. fiscal policy remains a source of concern, and everyone expects a weaker dollar.
Past peak tariff uncertainty, but no free lunch
Although investors are concerned about China, they generally expect more stimulus. With bumpy de-escalation being the path of least resistance, clients expect a sequence of deals to be announced in coming weeks, starting with India, Japan and possibly the U.K. Deals with China and the E.U. are perceived as much more difficult to achieve in the short term. Many believe that reallocation away from U.S. assets could continue, including by global central banks. Positioning in EM assets remains light but many expect to add local debt exposure once the outlook for U.S. risk assets is more clear. LatAm and EEMEA can benefit in this environment.
