Emerging-market stocks erase 2024 losses after January rout

Emerging-market shares are poised to erase this year’s losses after their earlier slump wiped out more than $1 trillion of market capitalisation.

The MSCI Emerging Markets Index rose as much as 0.7% Wednesday, putting it on course to close above the level of 1,023.74 set on the last trading day of 2023. Gains are being driven by technology shares and Indian large caps, while the single biggest contributor was Taiwan Semiconductor Manufacturing Co, which is on the verge of reclaiming a spot in the world’s 10 most valuable firms.

The recovery in developing-nation shares over the past month follows their worst start to a year since 2016 by the time of their mid-January low. While many of the concerns that drove that selloff remain — including a deflationary spiral in China and waning bets on Federal Reserve interest-rate cuts — they have been offset by a rush to buy shares linked to AI demand and confidence in India’s growth prospects.

“The January selloff pushed valuations in emerging markets to attractive levels, enticing bargain hunters,” said Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore. Signs of recovery in China — a key driver of emerging-market growth — have also boosted investor confidence, he said.

Initiatives by Chinese officials, including a cut to banks’ reserve ratios and a reduction in loan prime rates, have helped stabilize market sentiment. Benchmark indexes of Chinese stocks are rising this month, but are yet to erase their 2024 losses.

Emerging-market equities have started outperforming the region’s fixed income in recent weeks after about a year of similar performance, due to improving earnings and an increase in the US yield, Goldman Sachs Group Inc strategists including Caesar Maasry wrote in a note dated February 20.

Earnings momentum in Asia excluding China markets “continues to be strong,” while the non-Asian EMs will continue to grow due to improvement in US economic data and the local economies, Kelly Chung, a multi-asset fund manager at Value Partners Hong Kong wrote in a note.