Emerging Markets Surge: Five-Year High as AI Rally Matures

Emerging market stocks hit a near five-year high in early 2026, driven by strong manufacturing data and hopes of weakness in the U.S. dollar. Key markets in South Korea and Taiwan soared, while AI-focused investments attracted attention. Trade and tariffs remain crucial for Asia's economic sentiment.

Emerging market stocks witnessed a significant rise, reaching levels not seen in nearly five years during the first trading session of 2026. This surge was fueled by promising data on manufacturing activity, setting a positive outlook for the coming year, despite the challenge of surpassing the impressive gains observed in 2025.

The MSCI index tracking emerging market equities climbed 1.6%, although the currency gauge saw a slight dip of 0.1%. Investors are preparing for a complex landscape in 2026, with expectations of a continued weak U.S. dollar and an evolving AI market. Federal Reserve rate cuts could potentially weaken the dollar further, increasing the appeal of emerging market assets. However, experts advise caution as investors might become more discerning in their market strategies.

AI enthusiasts are keen on countries like Taiwan, South Korea, and China for growth opportunities. Shanghai Biren Technology's stock more than doubled during its Hong Kong launch, showcasing robust demand for AI-related investments. Meanwhile, analysts endorse a shift towards domestically-focused markets such as Brazil and India, as trade and tariff considerations remain pivotal for Asia's export-dependent economies.

(With inputs from agencies.)