**Emerging Markets Rally in Q2, Led by Asia and Eastern Europe**
The second quarter saw a surge in emerging markets, driven by investor enthusiasm for artificial intelligence. The MSCI Emerging Markets Index rose 5.0%, with Emerging Asia leading the charge, up 7.4%. Eastern Europe also performed strongly, climbing 6.7%. However, Latin America struggled, falling 12.2%.
In Emerging Asia, Taiwan and Korea’s stock markets soared, fueled by the AI boom, which boosted their information technology sectors. India’s market rallied after the country’s election, despite a mixed performance by Prime Minister Narendra Modi. Indonesia’s market slipped due to concerns over high interest rates and a new government. China’s market advanced on positive sentiment about its improving economic outlook.
In contrast, Latin America was the worst-performing region. Mexico’s market plummeted 16.1% following the country’s presidential election, as investors worried about the potential for aggressive reforms. Colombia and Chile’s markets fell sharply, weighed down by raw materials producers. Brazil’s market retreated on political uncertainty, while Peru’s market finished the quarter modestly higher.
The region encompassing emerging Europe, the Middle East, and Africa (EMEA) underperformed, although most stock markets in emerging Europe recorded gains. Turkey’s market rose on positive sentiment about its monetary policy, while Greece’s market fell modestly on profit-taking. Stock markets in the Gulf fell in sympathy with crude oil prices. South Africa’s market surged after the country’s election, raising hopes for a coalition government.
The information technology, communication services, and utilities sectors were the top performers in the quarter. Healthcare, consumer staples, and materials struggled. The Emerging Markets Core Equity Portfolio (MUTF:ECEIX) gained in absolute terms and performed in line with its benchmark, the MSCI Emerging Markets Index.
Stock selection in the information technology and materials sectors boosted relative performance, as did exposure to Taiwan and Korea. However, stock selection in the financials and consumer discretionary sectors, as well as exposure to China, detracted from performance.
Looking ahead, we believe that the unsynchronized global economic environment will continue to support equities, making it a reasonably good backdrop for emerging markets equities.
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