Emerging Markets End Year on High Note Amid Asian Tech Rally
As the year draws to a close, emerging-market stocks are celebrating a nearly double-digit return, driven by a surge in Asian tech shares and signs of impending stimulus from China.
Asian Tech Leads the Charge
The MSCI benchmark EM equity index rose for the second consecutive day, with Chinese stocks advancing 1% and leading the gains. This brings the year-to-date total return to 8.9%, a significant improvement despite underperforming developed market stocks, which have returned over 20% so far this year.
Currency Markets See Mixed Results
Meanwhile, emerging currencies edged lower, with the MSCI gauge hovering around its lowest level since August and headed for a 0.5% loss this year. However, the Colombian peso bucked the trend, climbing 1% to become the outperformer among developing currencies.
Bond Markets Show Resilience
Sovereign and corporate dollar bonds from emerging markets have returned around 7% in 2024, according to a Bloomberg index. Despite looming headwinds, including tariff threats and geopolitical tensions, investors remain optimistic about the fundamentals of EM companies.
China’s Stimulus Plans Boost Markets
A Reuters report that Chinese policymakers plan to sell a record three trillion yuan ($411 billion) in special treasury bonds in 2025 to bolster the slowing economy has given markets a boost. Chinese stocks rose, bringing this year’s gains to over 16%.
Tech Shares Extend Rally
Asian tech shares continued their recent rally, with Taiwan Semiconductor Manufacturing Co. hitting a record high and putting the world’s largest contract chipmaker on course for its best annual stock performance in 25 years. Shares in Alibaba Group Holding Ltd. also jumped 2.7%.
Currency Volatility Ahead
As 2025 approaches, investors are bracing for volatility, particularly with President-elect Donald Trump set to take office. However, some experts believe EM companies have sound fundamentals to navigate the uncertain environment. “Net leverage is very low for investment-grade and high-yield companies, and default expectations are also very low,” said Arnaud Boué, a senior fixed-income portfolio manager at Bank Julius Baer in Zurich.
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