Emerging markets surge on AI optimism, though India lags behind

The AI-driven stock market rally is causing a split between emerging markets, with some indices recording their strongest performance in years, and others experiencing a rout. Still, EM stocks are on track for their best year in nearly a decade, with the MSCI EM index up around 31% YTD, and funds tracking the markets like the USD 141 bn Vanguard FTSE Emerging Markets index up 23.5% YTD, marking the highest growth since 2017.

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China and South Korea are amongst the top performers, thanks to tech-heavy stocks tied to semiconductors and software, according to the Financial Times. AI-tied stocks like Alibaba Group, up 139% YTD and Taiwan Semiconductor Manufacturing, up 35% YTD, are among those seeing the biggest gains. Heavy concentration in these names, however, has also increased benchmark risk.

On the flipside, Indian equities have underperformed other emerging markets by the widest margin in more than three decades amid uncertainty over a US-India trade agreement, faster AI adoption in east Asia, tighter fiscal and monetary policy, and murky earnings visibility, the FT quotes analysts as saying. The MSCI India index booked its weakest return since 1993, with 2.5% in USD terms this year. Foreign investors have pulled out over USD 16 bn from the market, the second-largest outflow on record.

Funds were redirected to higher-performing EM markets linked to the AI boom, and investors treated India as a “funding trade” this year to finance long positions elsewhere in the region, Goldman Sachs global emerging market equity strategist Sunil Koul said.

ALSO ON PLANET FINANCE-

Anthropic enlists Wilson Sonsoni for IPO: US AI firm Anthropic — creator of the Claude chatbot and a major OpenAI rival — has brought on US law firm Wilson Sonsini to handle its work for a possible IPO, the Financial Times reports, citing sources familiar with the matter. The move comes at a time of sky-high valuations for tech startups, with OpenAI recently valued at USD 500 bn during a secondary share sale. The firm is eyeing a 2026 listing date, one source told FT.

The AI firm is reportedly seeking a private round valuing it at more than USD 300 bn and has held informal talks with banks but not yet chosen underwriters. An Anthropic spokesperson said no decision has been made on if or when it will go public.

REMEMBER- Abu Dhabi AI investor MGX was reportedly in early fundraising talks with Anthropic when Anthropic CEO Dario Amodei was on a tour in the Middle East, as it eyes a USD 170 bn valuation with a USD 5 bn new funding round set to be led by Iconiq Capital, with potential investments from the the Qatar Investment Authority and Singapore’s sovereign fund GIC.

MARKETS THIS MORNING-

Asian markets are mixed this morning, with Japan’s Nikkei leading gains, up 1.4%, along with China’s CSI 300 which was up 0.2%. Meanwhile, South Korea’s Kospi dropped nearly 1%, and Hong Kong’s Hang Seng fell 0.2%. Over on Wall Street, futures are little changed after stocks rallied yesterday on hopes of a Fed rate cut next week in light of positive jobs data.

THE CLOSING BELL-

The EGX30 rose 1.8% at yesterday’s close on turnover of EGP 6.9 bn (34.7% above the 90-day average). International investors were the sole net buyers. The index is up 39.0% YTD.

In the green: Egypt Aluminum (+6.1%), CIB (+4.8%), and Misr Cement (+4.7%).

In the red: Ibnsina Pharma (-1.9%), Beltone Holding (-1.5%), and GB Corp (-1.3%).