(Jan 5): Emerging-market stocks were on track to hit a record, buoyed by persistent gains in Asian technology shares that have fuelled risk appetite across the developing world.
The MSCI Emerging Markets Index rose as much as 1.5% on Monday, poised to surpass a peak notched five years ago. Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung Electronics Co were among the top contributors to the gauge’s rally, each up more than 6%.
The advance reflects strong investor demand for artificial intelligence (AI)-linked assets, which remain a focal point in global equities. Benchmarks in South Korea and Taiwan, as well as a regional Asia-Pacific gauge, were also headed for fresh highs.
Emerging-market assets are starting the year off strong, and analysts expect the momentum could carry on. The developing nation stocks surged more than 30% last year, their biggest annual advance since 2017. It was also the first year in eight they beat US peers, fuelling optimism that a multi-year cycle of investment inflows is underway.
See also: Emerging-market stock index hits five-year high on AI bets
Asia’s contribution to the emerging-market rally has been particularly notable given its role as a key supplier of critical components for the AI supply chain. Yet those gains have come with caveats. As markets heat up, shares of some of the biggest AI and tech firms have wobbled on valuation concerns, raising fears the sector’s surge may be entering a more volatile phase.
“In the near term, emerging markets can stay supported, but it’s likely a selective, bumpier grind rather than a straight-line rally,” said Charu Chanana, the chief investment strategist of Saxo Markets. “The upside is that Asian tech and AI supply-chain momentum can keep pulling the index higher, especially if global risk appetite stays firm.”
Emerging-market bonds and currencies traded mostly lower across Asia on Monday, though a key gauge of local currency bonds is up nearly 1% over the past month. The index returned 9.3% last year, the best annual performance since 2019, compared with a 6.3% gain in an index of developed market peers. Emerging-market currencies also posted their strongest year since 2017.
See also: Indonesia set to revamp benchmark rates for money market
Traders are now seeking new catalysts to drive the next leg of the climb, with upcoming US economic data and key earnings to provide clues into the health of markets. Concerns over the outlook of the US Federal Reserve’s planned interest-rate cuts, renewed geopolitical tensions following the US raid that captured Venezuela’s leader and various upcoming elections across Latin America are keeping some investors cautious.
Uploaded by Tham Yek Lee
