Emerging-Market Stocks Scale Five-Year High Amid Tech Surge

(Bloomberg) — Emerging-market stocks posted a strong start to 2026, following a $7.2 trillion annual rally, as Asia’s expanding role in artificial intelligence lifted Chinese technology shares to their biggest gains since September and pushed benchmarks in South Korea and Taiwan to record highs.

MSCI Inc.’s index of developing-nation equities rose 1.6% as of 9:01 a.m. in London, reaching its highest level since February 2021. That put the gauge a little more than 20 points, or 1.6%, short of its all-time high. Emerging-market stocks posted their biggest annual rally since 2017 last year, outperforming the S&P 500 Index, as AI shares and gold miners drove the advance.

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Currencies made a muted start, with the main index slipping 0.1%. South Africa’s rand led EM peers, while China’s yuan rose to the highest level since May 2023 in the offshore market. Traders remained focused on expectations for Federal Reserve easing, with money markets predicting the US central bank’s next interest-rate cut only by June.

Emerging markets are witnessing a wave of optimism after 2025 gains as global investors increasingly shift away from US assets and tout improving fiscal and monetary metrics in developing nations. Some of the key factors dominating the new year are China’s economic trajectory, Fed policy, US dollar moves and concerns around AI valuations. Donald Trump’s trade and geopolitical decisions form the sentiment backdrop, while prospects for rate cuts by local central banks drive selective bets.

“The strategic importance of EM technology leaders is structural, and the broader environment points to continued diversification away from highly concentrated and expensive developed markets,” said Varun Laijawalla, a portfolio manager at Ninety One Plc. “With the US accounting for roughly two-thirds of global equity indices, even modest reallocations can translate into meaningful inflows into emerging markets,” he said in a December interview.

Friday’s move put the EM stocks index on course for a sixth successive day of gains, its longest streak since September. South Korea’s Kospi Index rose to a record after Samsung Electronics Co. climbed to an all-time high, while a gauge tracking Chinese tech shares listed in Hong Kong surged as much as 4.3% amid enthusiasm over AI-related listings and progress at DeepSeek. Chipmakers across the region also advanced, extending momentum from last year.

As Middle Eastern markets opened, Dubai’s stocks benchmark posted a gain driven by banks and real estate companies. The index has posted five successive years of advances as investors back its immigrant-led growth, stable currency peg and government backing for business.

In currency markets, South Africa’s rand climbed to its strongest level since August 2022, supported by reform momentum, monetary-policy optimism and inflows fueled by a weaker dollar and further gains in gold.

The offshore yuan climbed to a level not seen since May 2023, while onshore trading in the Chinese currency was closed due to the New Year holiday. The People’s Bank of China set the yuan’s daily reference rate on Wednesday at a fresh high since September 2024, a day after it allowed the currency to pierce through the key 7-per-dollar level in the controlled onshore market.

In South Korea, the central-bank chief said recent won weakness doesn’t reflect the real strength of the economy, and vowed to oppose any US investment decisions that could threaten the stability of the currency market.

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