EM Stocks Fluctuate Before Weekend Even as Lower Oil Helps Mood

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(Bloomberg) — Emerging-market stocks swung between gains and losses ahead of the weekend, as efforts by the US and Israel to allay worries over the Iran war brought oil prices down from near-four-year highs.

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MSCI’s emerging markets index fluctuated on Friday, after dropping 2.7% the previous day when a fresh jump in crude prices roiled markets. A similar gauge for developing-world currencies rose 0.2%. Both indexes are on track for a weekly gain.

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“Comments by Israel and US officials have helped instill a semblance of calm to markets today helping EM assets recover somewhat,” said Mitul Kotecha, head of Asian FX and EM macro strategy at Barclays Bank Plc. “It’s very difficult to extrapolate into the days ahead — news flow remains volatile and we never know what weekend developments will take place.”

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Oil eased from its highest close since July 2022, as US and Israel sought to reassure investors rattled by strikes on major Persian Gulf energy facilities. President Donald Trump told reporters he’s “not putting troops anywhere” when asked about deploying US ground forces, while Israeli Prime Minister Benjamin Netanyahu said Israel would refrain from more attacks on Iranian energy facilities.

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That marks a reduction in tensions after an Iranian missile strike on Qatar’s Ras Laffan complex on Thursday damaged the world’s largest liquefied natural gas plant, worsening the outlook for energy prices. Reduced expectations for US rate cuts have also weighed on sentiment, with bond traders no longer pricing in Fed easing this year.

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Still, factors such as improving government finances and resilient growth expectations, are underpinning emerging-market economies, said Vincent Mortier, Group Chief Investment Officer at Amundi.

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“Investors are still largely underweight emerging market equities. That will gradually change,” he said, pointing out that EM equities as a share of global assets under management are currently around 5%, lower than long-term averages of around 7% to 8%.

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Analysts at HSBC say that while the war has added a fresh layer of uncertainty, investors continue to broadly support EM assets. According to a survey from the bank, sentiment toward the region has strengthened even further, with the share of bullish investors reaching the highest level since January 2021.

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Within the region, South Korea’s Kospi gained more than 1% on Friday, with Samsung Electronics and Samsung C&T among the biggest contributors to the rise. The Thai baht led gains among currencies, with the offshore Chinese yuan underperforming.

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