Emerging markets surge on AI optimism, though India lags behind

Investors seem split on what an AI-driven stock market rally means for emerging markets. 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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Tech-heavy China and South Korea indexes are amongst the top performers thanks to highly-weighted semiconductor and software stocks, according to the Financial Times. AI-tied stocks including 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 is looking to beat OpenAI to 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 it says are 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.