Emerging market equities and currencies are set to close the week on a strong note, buoyed by positive investor sentiment during thinned holiday trading. The rally positions these markets for a robust finish to 2025, following a remarkable 30% surge this year.
Markets Post Strong Weekly Gains
The benchmark index for emerging market (EM) stocks from MSCI Inc. climbed as much as 0.6% in Asian trading, reaching its highest point since November 14. With a 2.2% increase over the five sessions, the gauge is heading for its best weekly performance since the period ending November 28.
Leading the regional charge were the technology-focused markets of South Korea and Taiwan. Notably, shares of Samsung Electronics Co. soared to a record high. Markets in Indonesia and Hong Kong were closed for a holiday.
Currencies Extend Winning Streak
On the currency front, a key measure of developing-nation currencies advanced 0.6% since last Friday. This marks its fourth consecutive weekly increase and the most significant jump since August.
The Korean won was a standout performer on Friday, strengthening to its highest level since November 4. The rally was driven by a softer US dollar and inflows into local stocks. The move followed comments from South Korean authorities earlier in the week, who stated that excessive currency weakness is undesirable and promised to show a "strong determination" in foreign-exchange markets.
AI and Fed Policy: The Key Drivers Ahead
While the momentum is strong, market analysts caution that the future trajectory hinges on two major, yet uncertain, factors: the artificial intelligence (AI) boom and the Federal Reserve's interest rate decisions.
Charu Chanana, chief investment strategist at Saxo Markets in Singapore, highlighted the pivotal role of AI. "AI theme conviction remains uneven. That is the most important driver," she said. Chanana added that the rally "can extend if US dollar stays soft, but the bigger test comes when liquidity returns in early January."
In related currency news, China's yuan held steady. This followed a move by the country's central bank, which set its daily reference rate at a level significantly below market estimates—a record margin. This action is seen as a clear signal from policymakers to temper the currency's recent appreciation. The step was taken after the offshore yuan strengthened past the key psychological level of 7 per dollar on Thursday, a first since September 2024.
As the year draws to a close, the resilience of emerging markets is evident. However, the sustainability of this rally into the new year will be critically tested by global liquidity conditions, the evolving AI investment landscape, and the monetary policy path charted by the US Federal Reserve.
