LONDON (Reuters) - Emerging markets are in for a tough and uncertain year due to policy shifts in the United States and uncertain growth in China, JPMorgan ( JPM ) said in its annual outlook, predicting emerging markets bond funds were in line for sizeable outflows. 

"EM growth faces significant uncertainty in 2025, caught between two giants - China and the U.S. - with policy changes in the latter potentially delivering a large negative supply shock that will have spillovers across EM," JPMorgan ( JPM ) said on Tuesday. 

The bank said its base case sees growth across developing nations slowing to 3.4% in 2025 from 4.1% this year. Looking at emerging markets ex-China, JPMorgan ( JPM ) predicted growth to moderate to 3.0% from 3.4%. 

Emerging-market fixed income was set to be at the sharp end of the stick, with Donald Trump's return to the White House and a Republican Congress posing "challenging headwinds" due to tariff policy, geopolitical shifts and domestic U.S. policy leading to a stronger dollar as well as higher rates. 

The Wall Street bank predicted emerging market dedicated bond funds were set to suffer outflows of between $5 billion and $15 billion next year. 

"U.S. policy's impact on sentiment to EM is likely to be the main drag, with the lagged impact of Fed easing providing some offset," JPMorgan ( JPM ) analysts wrote. 

On debt sales, JPMorgan ( JPM ) forecast $169 billion of hard-currency sovereign gross issuance in 2025, a touch below 2024. However, rising amortisations meant net financing would stand at $1.3 billion, a fraction of this year's $55.2 billion.

The bank said it expected hard-currency sovereign debt to return 4.3% by year-end 2025 compared to returns of 6.9% year-to-date 2024. 

"What lies ahead for EM in 2025 looks likely to be choppier waters, albeit hitting an already battle-hardened asset class," JPMorgan ( JPM ) said.

In terms of specific market calls, the bank removed its overweight call on sovereign debt from the Dominican Republic, even if it expects the country to attain investment-grade status over the next four years. It also turned underweight in Indonesia local rates.