Emerging Markets Post Strongest Monthly Gains Since 2022 as Artificial Intelligence and Oil Price Concerns Drive Market Movement

Emerging-Market Equities Post Best Month Since 2022 Amid AI Optimism and Oil Supply Shock

Emerging-market equities recorded their best month since 2022 in April, driven by rallies in Asian technology shares fueled by optimism over artificial intelligence demand. This comes despite ongoing concerns about an oil supply shock due to the US-Iran standoff over the Strait of Hormuz.

According to MSCI, the index for emerging equities gained 14.5% in April, reversing losses that followed the start of the war. Before a technical index adjustment at the end of the day, the gauge was on track to notch the best monthly rise in 17 years.

The climb reflects more than just a short-covering rally, with analysts predicting further upside. Global X Management's senior portfolio manager, Malcolm Dorson, notes that emerging-market companies have seen profit forecasts lifted by 30% this year, outpacing the average 10% upgrade for the S&P 500.

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Risk sentiment was mixed on Thursday, with developing-nation stocks sliding 1.1% as most individual currencies gained against a weaker dollar. Despite crude prices retreating from four-year highs, they held well above $110 a barrel, and fears remain that the Iran conflict is set to escalate. The Axios report that US President Donald Trump is set to receive a briefing on new military options for action, while Iran's new supreme leader vowed to guard the country's nuclear and missile technologies, has heightened market concerns.

The latest setback suggests a reckoning for those betting that the war in Iran was winding down and the oil-price shock would be limited. It's redrawing the lines even more acutely across emerging markets, according to Anthony Kettle, senior portfolio manager at RBC Bluebay Asset Management.

A group of Asian currencies from oil-importing nations, including the Malaysian ringgit, Indonesian rupiah, Taiwanese dollar, and Indian rupee, have borne heavy losses, slipping further on Thursday. The benchmark for EM currencies slipped 0.1%.

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JPMorgan Chase & Co. strategists have slashed their bullish stance on emerging markets currencies to marketweight, citing high valuations and positioning in foreign exchanges, as well as increasing stagflationary risks. They turned bearish on Asia currencies and remain overweight in higher-yielding names in Latin America and Eastern Europe, Middle East and Africa.

Colombia's central bank unexpectedly halted a series of interest rate increases that had provoked a bitter clash with the government, leaving the key rate at 11.25% in a unanimous decision. The Romanian leu fell 1.8% against the euro as a government crisis escalated.