Emerging-market stocks leaped Tuesday, with a key equity gauge now close to erasing its losses since the start of the West Asia conflict in late February, as speculation over further peace talks lifted investor sentiment.
The MSCI Emerging Markets Index jumped more than 2 per cent to its highest level since March 2 and is now just 0.3 per cent below its February 27 close. Most developing-world currencies also advanced amid a weaker dollar, with the Israeli shekel leading gains as the ceasefire appeared to hold and hopes for a resolution gained traction among traders.
The drivers behind the earlier 2026 EM rally — before the conflict erupted — are reasserting themselves, with the geopolitical shock failing to materially undermine the asset class’s fundamentals.
“EM investors are optimistic that the worst is behind us” in the Iran conflict, said Ashish Chugh, Portfolio Manager & Head of Global EM Equities at Loomis, Sayles & Co. “Sentiment is reverting to the pre-war days when EM was viewed as a strong source of growth, AI-led innovation and a destination for capital that was leaving the US.”
While the conflict has rekindled inflation concerns, particularly for countries reliant on crude imports, investors are betting on de-escalation. Reports that the ceasefire is holding, that Saudi Arabia’s east-west pipeline capacity has been restored, and that Iran may pause shipments through the Strait of Hormuz to facilitate talks have helped support risk appetite.
“It is risk-on today with flows rotating back to AI and semi high-beta stocks on renewed hopes of West Asia de-escalation,” said Megan Ie, a senior equity analyst at GIB Asset Management. “The set-up is attractive.”
Most allocations are still below benchmark weight on EM equities, making it more likely that investors will think of rotating away from US stocks, where gains have been concentrated among a few mega-tech firms, she said. Asian tech heavyweights, including Taiwan Semiconductor Manufacturing, SK Hynix Inc, and Samsung Electronics led Tuesday’s gains in the MSCI gauge.
MSCI’s EM currency index rose 0.6 per cent Tuesday as the dollar weakened for a sixth straight session. The Korean won advanced 0.8 per cent, while Latin American currencies — including the Chilean, Mexican, Colombian and Argentine pesos, along with Brazil’s real — also strengthened.
A few currencies lagged. Peru’s sol fell 0.4 per cent as uncertainty persisted following a presidential election on Sunday, with a race to take on conservative Keiko Fujimori in the run-off vote. Meanwhile, Hungary’s forint took a breather after rallying more than 3 per cent on Monday following the opposition’s election victory over Viktor Orban’s party. The currency was little changed on Tuesday.
Emerging-market debt also rallied, with most sovereign dollar bonds moving higher. Colombia’s longer-dated bonds led gains after the country’s public credit chief said the government plans to repurchase some hard-currency debt through a tender offer.
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