EMERGING MARKETS-Stocks log stellar 2025 on AI boom, robust fundamentals

By Rajasik Mukherjee

Dec 31 (Reuters) - Emerging Asian equities traded mixed on the last day of 2025 on Wednesday but were set for their strongest annual gains in years, buoyed by strong fundamentals and rising capital flows into growth markets, amplified by an AI-driven investment boom.

Currencies also stayed on the front foot amid sustained U.S. dollar weakness driven by rate cuts, fiscal concerns and erratic trade policy, with the Thai baht and the Malaysian ringgit set for their strongest annual rallies in nearly a decade, leading regional gains.

The MSCI index of emerging Asian equities .MIMS00000PUS was on track to end the year 30% higher, its steepest annual gains since 2017, while the broader Asia ex-Japan index .MIAPJ0000PUS was poised for its strongest showing in eight years with gains of 27%.

South Korea's KOSPI index .KS11 stole the spotlight with its eye-watering 76% gains this year - its best since 1999 - and was set to clinch the title of the world's best-performing major stock market.

Taiwan's stock market .TWII was another major beneficiary of the global AI phenomenon and its related flows, soaring 26% in 2025, its third consecutive year of robust growth.

And that is expected to continue into 2026 as investors keep channelling capital into AI-linked infrastructure, foundries and supply chains, betting on sustained earnings growth from data centres, advanced chipmaking, and next-generation computing.

"The artificial intelligence investment cycle is still the dominant narrative," Anthony Doyle, chief investment strategist at Pinnacle Investment Management in Sydney, wrote in a note.

"It is crucial to acknowledge that it is both an earnings story and a secular thematic that will impact markets for decades to come."

Investors expect Taiwan's benchmark gauge to cross 30,000 points next year. It breached the 29,000 mark for the first time on Wednesday, ending the year on a solid note.

In Southeast Asia, Singapore's FTSE Straits Times index .STI and the Jakarta Composite index .JKSE were both poised for around 22% annual gains, with the former notching its best year since 2009 and the latter since 2014.

By contrast, Thailand's benchmark equity index .SETI slid 10% this year.

The Thai baht THB=TH was set to close 2025 around 9% stronger against the U.S. dollar, driven by online gold trading as bullion soared.

Malaysia's ringgit MYR= was the lead performer, with its 10% gains - the best since 2017.

"(Ringgit's) gains have been underpinned by a run of stronger-than-expected activity data and a relatively hawkish central bank," said Gareth Leather, senior economist at Capital Economics.

"We expect the ringgit to remain fairly stable against the U.S. dollar over the coming year."

Most other currencies in the region also strengthened against the dollar as the Federal Reserve's monetary easing and a government shutdown weighed on the world's reserve currency.

Still, Indonesia's rupiah IDR= was set to close the year 3.6% lower.

On the final trading day of 2025, most currencies were trading mixed: the rupiah ticked higher to a 10-session peak, while the Thai baht THB=TH hovered around a one-week low.

Equity markets in South Korea, Thailand, Indonesia, and the Philippines .PSI were closed for a holiday on Wednesday.

HIGHLIGHTS:

** Fed officials showed deep divisions at December meeting, minutes show

** China's factory activity snaps record slump on festive stockpiling

** Dollar dismal, yen muted in 2025 but euro and sterling shine

(Reporting by Rajasik Mukherjee in Bengaluru; Editing by Muralikumar Anantharaman)

((Rajasik.Mukherjee@thomsonreuters.com))