Emerging market stocks rise every month this year for the first time since 1993
The surge is driven by factors including strong gains in many AI-focused Asian tech stocks and a weaker US dollar
THE emerging market (EM) equity benchmark gained for a 10th consecutive month in October, as an artificial intelligence (AI) boom and a weaker US dollar drive capital inflows.
The MSCI Emerging Markets Index has rallied every month from January to October – a feat last seen in 1993 – and is up around 30 per cent this year. On Friday (Oct 31), it fell 0.7 per cent but closed out the month with a 4 per cent gain.
Multiple catalysts have driven that surge, including strong gains in many AI-focused Asian tech stocks and a weaker US dollar prompting money managers to diversify beyond American assets. In China, targeted stimulus has helped bolster earnings estimates, fund flows and sentiment.
“EM stocks are no longer simply banks, commodities and telecom,” said Sammy Suzuki, head of EM equities at AllianceBernstein in New York. “Tech, consumer and medical sectors with more intellectual property content occupy much larger weights today.”
Emerging market assets were under “modest pressure” on Friday, however, as investors continued to digest the possibility of the US Federal Reserve not lowering interest rates in December, according to Brendan McKenna, EM economist and forex strategist at Wells Fargo Securities in New York.
Fed chair Jerome Powell said there were “strongly differing views about how to proceed in December”, during a press conference following Wednesday’s rate decision.
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“If the Fed doesn’t cut in December or there is another unforeseen shock, EM is so stretched from a valuation perspective that the correction could be quite sharp,” McKenna said. “The new uncertainty is leading to modest profit-taking in select asset classes.”
Multi-year rally?
EM stocks are outperforming their US peers for the first time in eight years, prompting money managers including Morgan Stanley to forecast the start of a multi-year rally.
EM bonds also rose in October. The Bloomberg EM Sovereign Total Return Index of US dollar bonds capped a seventh successive month of gains. The gauge for EMFX edged lower in October.
Risk assets could also benefit from a perceived easing of tariff frictions, after a trade truce between China and the US.
“The bottom line is that even though there has been little incremental detail, the optimistic tone of President (Donald) Trump and the announcement of trade deals have helped remove some uncertainty this week,” Citigroup strategist Rohit Garg wrote in a note to clients. That “has further fuelled risk-on sentiment in equities globally”. BLOOMBERG
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