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(Bloomberg) — Emerging-market stocks are on track for their biggest weekly gain in close to six years ahead of US-Iran talks this weekend, with investors hopeful of further easing in Middle East tensions amid a shaky ceasefire.
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MSCI’s emerging markets index was trading 0.9% higher on Friday, and set for the largest weekly gain since June 2020. A similar gauge for developing world currencies was 0.1% higher, on track for its biggest weekly gain since last May. Oil prices pared gains ahead of the US-Iran ceasefire talks scheduled in Pakistan.
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“The decline in tensions in the Middle East has prompted investors to increase their investments in emerging markets,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management SA. “Ahead of Tuesday’s news, investors had significantly reduced or even gone short EM equities,” he said, referring to US President Donald Trump’s earlier deadline for Iran to strike a ceasefire deal.
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Trump said on Thursday he was “optimistic” about a deal with Iran but later threatened Tehran over charging fees in the Strait of Hormuz. Meanwhile, Israel’s Prime Minister Benjamin Netanyahu agreed to hold talks with Lebanon, signaling hope for de-escalation after aggressive Israeli strikes on the country.
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South Korea’s Kospi outperformed, with chipmakers among the biggest contributors to the rise in the index. Asian software stocks, however, fell as jitters around AI-led disruptions intensified after the release of new models.
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While emerging-market assets strengthened, analysts were skeptical of how much the gains could extend, given uncertainties over the Middle East ceasefire and a sustained resumption in energy flows through the region.
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“The recent bounce in Asia FX appears largely sentiment-driven and vulnerable to reversal should geopolitical tensions re-escalate or if oil prices stay high for longer,” wrote Lloyd Chan, a currency strategist at MUFG Bank Ltd. A sustained recovery would require a reopening of the Strait of Hormuz and a persistent slide in oil prices, he said.
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