Emerging Markets: Resilience Amid Global Tensions

Emerging market assets maintained stability following a strong year-start, amid geopolitical tensions easing in Iran and President Trump's softened rhetoric. The MSCI EM stock index saw slight declines, while currency gauges rose, indicating investor interest in non-U.S. assets driven by geopolitical risks, weaker dollar, and precious metal demand.

Emerging market assets displayed steadiness on Thursday, as investors paused after a robust beginning to the year. Gold and oil prices fell due to U.S. President Donald Trump's lessened geopolitical statements. The MSCI emerging markets stock index slightly decreased by 0.1% following record peaks in prior sessions. In contrast, a currency gauge experienced a 0.3% rise, as Trump reported decreasing violence in Iran despite ongoing tensions.

Investor demand for emerging market stocks remained strong in January, with ING analysts noting significant inflows into the iShares Core MSCI EM index, marking the largest weekly inflow since 2021. The trend reflects investors seeking opportunities outside U.S. markets, especially within EM equities. According to JPMorgan data, year-to-date inflows for EM equity ETFs surpassed $5 billion by Tuesday. Geopolitical uncertainties in Venezuela, Iran, and Greenland, a weakening dollar, rising precious metal prices, and a retreat from the expensive U.S. tech sector have bolstered interest in EM assets. Trump also eased Federal Reserve chair Jerome Powell criticisms.

Domestically, Czech November retail sales surpassed expectations, rising 4.6% year-on-year. Hungary's industrial output fell from the previous year, affecting the forint and benchmark index. Poland's index rose, maintaining stable zloty and inflation expectations. Mozambique's dollar bond fell as President Daniel Chapo hinted at debt renegotiation with the IMF. In Asia, South Korea's index reached a new high after the central bank signaled the end of an easing cycle, with markets in the Philippines and Thailand also gaining.

(With inputs from agencies.)