Analyses from Citigroup indicate that asset management firms overseeing more than $20 trillion globally are growing increasingly optimistic about emerging market equities, currencies, local currency bonds, and credit. This shift in sentiment could inject new momentum into the record-breaking rally observed in these markets. A review of outlook reports published by some of the world's largest asset managers revealed that these funds have increased their long positions across Asian, Latin American, and EMEA markets. This development coincides with the MSCI Emerging Markets Index trading near all-time highs; the index rose 0.2% on Thursday and has gained nearly 15% year-to-date.
While a report on AI's disruptive potential across multiple economic sectors sparked concerns and volatility in U.S. stocks this week, Asian tech shares remained resilient. This is attributed to companies in South Korea and Taiwan producing hardware essential for building AI networks. South Korea's benchmark stock index advanced another 3.8% on Thursday, with Samsung Electronics surging 9% to mark its longest winning streak since 1986. The South Korean stock market recently surpassed France to become the world's ninth-largest, contributing 6% to the rise in the emerging markets index this month alone. In contrast, the S&P 500 is on track to end February flat. U.S. stocks declined on Thursday, as strong earnings guidance from Nvidia failed to reassure investors seeking confidence in the AI outlook.
The broad positive sentiment toward emerging markets stems from rising U.S. policy uncertainty and widening fiscal deficits, which are pressuring the U.S. dollar. This is forcing more investors to diversify exposure away from dollar-denominated assets. Concurrently, concerns are mounting over increased spending in Japan, Germany, and other developed nations. Citigroup analysts told clients that emerging markets are attracting greater attention "because asset managers are seeking diversification opportunities in non-U.S. assets, while also identifying opportunities in emerging markets due to improving fundamentals and a weaker dollar."
**Cautious Trading** Despite a relatively stable dollar, most emerging market currencies weakened on Thursday. Some Asian currencies gained, with the New Taiwan dollar rising 0.3% driven by strong foreign inflows; the Chinese yuan and Indonesian rupiah also appreciated. However, overall emerging market forex sentiment turned cautious during the session against a backdrop of falling commodity prices, with most Latin American currencies declining against the dollar. The Colombian peso fell notably, dropping nearly 4% in its largest single-day decline since March 2020. This followed a recent poll showing left-wing Senator Iván Cepeda taking a significant lead in the presidential race. Neighboring Ecuador's decision to raise tariffs on Colombian imports escalated a trade dispute, further souring sentiment toward Colombian assets. The peso was the worst-performing emerging market currency on Thursday. Colombian dollar-denominated bonds fell across the board, ranking among the weakest performers in emerging market debt assets, with long-dated dollar bond prices dropping more than 1 cent.
"With the March 8 election approaching, local yields are soaring," said Alvaro Vivanco, Wells Fargo Emerging Markets Macro Strategist. He added that while the trend reflected in polls is not new, the recent "significant rise" in support for incumbent President Gustavo Petro provides Cepeda with a "higher ceiling" in the vote. Other Latin American currencies also faced pressure. The Chilean peso fell nearly 1%, and the Argentine peso declined 0.6%, giving up gains from earlier in the week that had pushed it to a four-month high. The Brazilian real fell approximately 0.3%. In Brazil, Flavio Bolsonaro's presidential campaign is gaining momentum, surprising skeptics who initially viewed his candidacy as a strategy to secure a pardon for his imprisoned father, former President Jair Bolsonaro, rather than a serious bid. Many centrists had feared his campaign would split the right-wing vote, handing the October election to incumbent President Luiz Inacio Lula da Silva. However, his recent rise in polls is challenging this assumption.
Elsewhere in the region, Latin American equities underperformed, with a regional stock index falling 0.7%, diverging from the slight gain in the MSCI Emerging Markets Index. Despite this, Latin American stocks remain among the world's best performers this year, up nearly 20% year-to-date in 2026, outpacing the broader emerging market gain of approximately 15%. There are notable exceptions. Argentine equities have failed to join the broader Latin American rally, as initial enthusiasm following President Javier Milei's election victory has faded, replaced by concerns over weak corporate earnings. The country's benchmark Merval index has flattened and is down about 8% for the year.
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