Emerging Market Assets Surge Amid Upbeat U.S. Economic Data

Emerging market assets rose as U.S. economic data alleviated concerns about slowing growth. MSCI’s index tracking emerging market equities saw its best week in nearly four months, with significant gains in Asian markets. Despite cautious optimism, traders continue to expect a Fed rate cut to support higher-yielding emerging market assets.

Emerging market assets broadly rose on Friday, with MSCI's index tracking equities on track for its best week in nearly four months, as closely watched U.S. economic data soothed jitters over slowing growth while keeping the case for Federal Reserve September policy easing intact. MSCI's index tracking emerging market stocks rose 1.6% as bourses in Asia broadly strengthened, led by stocks in Taiwan and the Philippines.

The rise in global stocks followed stronger-than-expected U.S. retail sales data on Thursday, which, alongside inflation data earlier this week, relieved investors worried about growth in the world's largest economy after sharp bouts of volatility earlier in the month. The EM stocks index is set to rise 2.8% for the week, its best week since April. An index tracking emerging market currencies remained flat on the day but anticipated weekly gains of 0.4%, nearly reaching 2022 highs.

While stronger U.S. data saw investors dial back bets on a larger start to interest policy easing from the Fed, traders still expect a rate cut at its next meeting, potentially boosting demand for higher-yielding emerging market assets. "The rush to seek higher yields in EM territories may subside given the slower easing cycle in the U.S., but there's no doubt that lower U.S. recession risk will give confidence to invest in EM," said Charlie Bird, FX trader at Verto.

"Naturally, we expect regions with strong ties to the U.S. to benefit in the medium term, but any global economic positivity will filter through all EM territories." Among top performers in Africa, South African stocks jumped 1.1% on the day, touching a record high and on pace for weekly gains of 3%. The rand rose 0.4%, set to continue an eight-day winning streak and for its best week since June.

Thai stocks rose 1% after Paetongtarn Shinawatra was selected as the country's prime minister, replacing Srettha Thavisin. The baht edged 0.1% lower against the dollar. Meanwhile, Russia's rouble was flat against the dollar, steadying after touching a 10-month low earlier in the week as Ukraine intensified an attack on Russian territory.

Israel's shekel was steady against the dollar as Gaza ceasefire negotiations continued. Polish stocks led weekly gains in emerging Europe, up over 6%. The zloty was trading at a near three-week high versus the euro, on track to rise nearly 1% for the week.

Turkish stocks were little changed on the day but on pace for their first weekly gain in four, while the lira touched a fresh record low to the dollar of 33.70.