(Bloomberg) -- The craze over artificial intelligence and China’s support for markets underpinned gains in emerging market stocks this week, while debt from some of the riskiest countries in the world soared on the back of political developments.
MSCI Inc.’s benchmark for emerging marketequities headed for a fifth week of gains, though it edged lower on Friday as the global stock rally lost steam. Following Nvidia Corp.’s blockbuster results this week, Asia chipmakers including Taiwan Semiconductor Manufacturing Co. and SK Hynix Inc. were the biggest contributors to the rally that led the stock index to erase its 2024 loss. Investor confidence also boosted bonds, as notes from Egypt to Sri Lanka and Pakistan gained on political developments.
“Traders are seeing plenty of risk-taking in equities across the globe,” said Juan Perez, director of trading at Monex USA. “This week was mostly characterized by a halt in the dollar’s momentum and a focus on the remarkable earnings for a chipmaker in the midst of an AI revolution.”
Elsewhere, Egypt notes led gains among developing-nation peers following a $35 billion investment deal with the United Arab Emirates and a shoutout from the International Monetary Fund. Bonds from Sri Lanka climbed as the government sent investors a revised debt restructuring proposal. Pakistan’s securities jumped as a political deadlock following a split election verdict ended with the formation of a government.
Senegal’s bonds also advanced after President Sall sought to allay fears he was working to extend his term in power.
Emerging market equities rebounded from their worst start to a year since 2016 as optimism for a more dovish monetary- policy outlook and China’s stimulus package boosted risk appetite. Notably, Latin America’s e-commerce giant MercadoLibre Inc. fell the most in nearly two years after posting fourth- quarter earnings that fell short of analyst estimates, putting a pause on a major stock rally over the past year.
While the equity index has erased its 2024 losses, bonds and currencies are also on the verge of doing so. Sovereign-risk premiums have fallen near a two-year low and currency volatility is at the lowest level in four years.
Still, trader optimism failed to translate to currencies on Friday, as most weakened. The rand was the biggest laggard among the group for the week, dropping to a four-month low. Colombia and Chile’s pesos each sank over 1% this week, while the real dipped. Mexico’s peso was poised for its first weekly drop in four, partly driven by investors’ expectations of looming interest-rate cuts. Peru’s sol was an outlier, advancing this week amid central bank interventions.
In other political negotiations, the US and China are discussing new measures to prevent a wave of emerging market sovereign defaults, according to people familiar with the situation, one of the most significant attempts in years at economic cooperation between the rival superpowers.
Reporting by Srinivasan Sivabalan, Maria Elena Vizcaino and Kevin Simauchi
