Fed Chair Warsh Backs AI as Economic Booster; Emerging Market Sentiment Lifted

Emerging market stocks advanced after the Federal Reserve expressed an optimistic view on the economic impact of artificial intelligence.

The MSCI Emerging Markets Index extended its gain to 1%, its first rise this week, after Fed Chair Kevin Warsh said AI will deliver substantial benefits to the U.S. economy.

In contrast to the broader market optimism, Indonesian equities posted their largest decline in nearly three decades after MSCI stated the country no longer qualifies for emerging market status.

MSCI said it is seeking feedback on a proposal to reclassify Indonesia as a standalone market, noting that a downgrade to frontier market status would not fully reflect the severity of the country's market issues.

The Indonesian rupiah lagged all Asian currencies against the dollar on Monday.

OCBC strategist Christopher Wong said that while the proposed reclassification may be seen as "marginally negative for Indonesian assets," the direct impact on capital flows could be limited.

"The bigger focus is on how this might affect investor sentiment," he said.

In another sign of AI boosting the economy, Malaysia's first-quarter gross domestic product grew 5.3% year-on-year, exceeding economist expectations, as AI continued to drive the country's export growth.