Buoyed by the sustained rally in artificial intelligence concept stocks, a benchmark index for emerging markets is climbing towards its highest level in 38 years of history. Since last April, the surge in the AI sector has cumulatively added approximately $10 trillion in wealth for shareholders globally.
As of 7:51 a.m. London time on Monday, the MSCI Emerging Markets Index rose 1.2%, positioning itself not only to set a new record closing high but also to achieve its best annual start since 2018. Gains from Taiwan Semiconductor Manufacturing Company (TSMC) contributed to more than half of the index's overall increase. This followed an upward revision of the target share price for this key supplier to Apple and NVIDIA by Goldman Sachs Group. Additionally, stocks such as Samsung Electronics, SK Hynix, and Alibaba Group were major forces driving the index higher.
Entering 2026, emerging market equities have continued their robust momentum. In 2025, the sector not only recorded its largest annual gain in eight years but also outperformed US stocks for the first time since that year began. A weaker US dollar, US investors seeking overseas asset allocations, and reform momentum in economies like Ghana and South Korea have collectively underpinned this rally.
Optimistic market expectations for the AI development prospects of Asian companies, coupled with anticipation of further stimulus measures from China, have also driven capital inflows into emerging markets. Fund managers increasingly believe that current allocations to such assets are underweight.
"This rally has indeed been a long time in the making," said Todd Sohn, Senior ETF and Technical Strategist at Stratas Advisors in New York. "While global ETFs typically see consistent inflows to maintain allocation sizes, my sense is that many investors still have extremely low exposure to emerging markets, leaving room for further increases, particularly as a way to dilute the risk associated with holdings in the US AI sector."
The emerging market index has now advanced for seven consecutive trading sessions, marking its longest winning streak since September 17 last year. Year-to-date, the index has gained 3%, with its price-to-earnings ratio rising to 13.4 times, above its five-year average of 12.3 times.
Concurrently, momentum indicators referenced by some traders—such as the Relative Strength Index (RSI) and Bollinger Bands—suggest the index has entered overbought or overheated territory, indicating an increased probability of a subsequent pullback.
"In the near term, emerging markets can still find support, but this is more likely to be a structural, volatile uptrend rather than a one-sided, continuous surge," said Charu Chanana, Chief Investment Strategist at Saxo Markets. "The positive factor is that as long as global risk appetite remains stable, the growth momentum in Asian technology and the AI supply chain will continue to propel the index higher."
Traders are actively searching for new catalysts to push the market further upward; upcoming US economic data and key corporate earnings reports could provide clues about the market's health. However, concerns over the outlook for the Federal Reserve's interest rate cut plans, escalating geopolitical tensions following US actions against a Venezuelan leader, and multiple upcoming elections in Latin America are keeping some investors cautious.
The market is closely watching the aftermath of the US move over the weekend to oust Venezuelan President Nicolás Maduro. Gold and the US dollar rose in response, signaling a rise in risk-off sentiment. Energy stocks broadly declined, weighed down by Brent crude oil prices falling below $60 per barrel.
Currency markets saw relatively mild overall volatility on Monday; despite a stronger US dollar, a benchmark index for emerging market currencies fell by less than 0.1%. The Mexican peso depreciated by 0.6% against the US dollar, after the currency had reached its highest level since July 2024 during Friday's trading session.
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