(Bloomberg) — Emerging market stocks rose on Tuesday, with the main equities gauge pushing to close the year with nearly doubled gains on the back of an Asian tech rally and signs that China is preparing to release more of stimulation.
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MSCI's benchmark HM equity index rose for a second day in thin pre-holiday trading, having posted a total return of 8.9% for the year to date. Gains were led by a 1% gain in Chinese stocks. Still, the index has significantly underperformed developed market stocks, which have returned more than 20% so far this year.
MSCI's gauge for emerging currencies edged lower, down for a second session. The index has hovered around the lowest level since August and is heading for a 0.5% loss this year. Meanwhile, sovereign and corporate dollar bonds from emerging markets have returned about 7% in 2024, according to the Bloomberg index.
There are a number of headwinds for developing countries, including threats of increased tariffs from President-elect Donald Trump, geopolitical tensions and signs of sticky inflation. However, some investors remain optimistic.
The year “2025 will bring volatility again, especially when Trump officially reaches the seat of power, but EM companies have very solid fundamentals that will help them navigate in this uncertain environment,” said Arnaud Boué, senior fixed income portfolio manager at Bank. Julius Baer in Zurich. “Net leverage is very low for investment grade but there are also high yield companies and default expectations are also very low.”
In a positive for markets, Chinese markets got a boost from a Reuters report that policymakers plan to sell a record three trillion yuan ($411 billion) in special treasury bonds in 2025 to boost the slowing economy. Chinese stocks rose, bringing this year's gains to over 16%.
Asian technology shares also extended their recent rally, with Taiwan Semiconductor Manufacturing Co. hit a record high, putting the world's largest contract chip maker on track for its best annual stock performance in 25 years. The stock climbed as much as 1.4% on Tuesday, before erasing the gain to close the gap. Shares in Alibaba Group Holding Ltd also jumped. 2.7%.
The Colombian peso climbed 1% as the best performer among emerging currencies, while the South Korean gainer was a notable laggard with a 0.5% slide. The gain was undermined by weak consumer confidence data as well as the opposition's promise to start impeachment proceedings against Acting President Han Duck-soo.