Emerging-market equities are on track to wipe out their losses for the year following a significant rebound after a challenging start in January, which saw over $1 trillion in market capitalization vanish. The MSCI Emerging Markets Index surged by up to 0.7% on Wednesday, positioning itself to close above the level recorded on the final trading day of 2023.
Driving the gains are technology shares and Indian large caps, with Taiwan Semiconductor Manufacturing Co. emerging as the single largest contributor, poised to reclaim its position among the world’s top 10 most valuable firms.
The recent recovery comes on the heels of the worst January performance since 2016, characterized by concerns such as a deflationary trend in China and dwindling expectations of Federal Reserve interest-rate cuts. However, a surge in demand for AI-related shares and growing confidence in India’s economic growth trajectory have countered these worries.
According to Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore, attractive valuations in emerging markets following the January selloff have attracted bargain hunters. Additionally, signs of economic recovery in China, a pivotal driver of emerging-market growth, have bolstered investor sentiment, spurred by initiatives such as cuts to banks’ reserve ratios and loan prime rates.
While Chinese benchmark indexes have shown upward momentum this month, they have yet to fully recover their losses for 2024. However, emerging-market equities have begun outperforming fixed income in the region in recent weeks, driven by improving earnings and rising US yields, as highlighted by strategists at Goldman Sachs Group Inc., including Caesar Maasry.
Kelly Chung, a multi-asset fund manager at Value Partners Hong Kong Ltd., noted that earnings momentum in Asia excluding China remains robust, while non-Asian emerging markets are expected to benefit from improved US economic data and local economic developments.
As emerging-market stocks continue their recovery trajectory, sustained investor confidence will hinge on further economic indicators and policy initiatives aimed at fostering stability and growth in these regions.
