(Bloomberg) – Most emerging market currencies saw a decline as the dollar ended a four-day losing streak, and traders were left navigating the void of economic data owing to the US government shutdown. There has been an uptick in inventory.
The MSCI Inc. gauge for emerging market currencies closed Thursday with a negligible change of less than 0.1%. Notably, high-yield currencies like the Mexican peso, South African rand, and Brazilian real were among the poorest performers in a group of 23 currencies monitored by Bloomberg.
Earlier this week, traders got a glimpse into the US labor market with reports on job openings and private payrolls from ADP. However, due to the ongoing government shutdown, the release of initial weekly unemployment claims has been stalled, and the non-farm payrolls report expected on Friday may also face delays.
“Right now, the market appears hesitant to take on any additional risks,” remarked Ning Sun, a senior market strategist at State Street Global Markets. “The primary factor remains US economic data. And how markets interpret various combinations of inflation and growth is crucial.”
Stocks in emerging markets recently hit their highest levels since mid-2021. This surge comes alongside growing enthusiasm for artificial intelligence, in part spurred by significant stock sales from OpenAI, which positively influenced global sentiment. The MSCI index for emerging market stocks rose by 1.1%, largely fueled by gains in technology stocks, including Taiwan Semiconductor Manufacturing Co. and Alibaba Group Holding Ltd.
OpenAI’s valuation skyrocketed to $500 billion after current and former employees sold approximately $6.6 billion in stock, which marked an increase from the previous valuation of $300 billion. In addition, OpenAI solidified a partnership with a South Korean chipmaker to support the Stargate project, further boosting excitement around AI.
“Investors are really drawn to themes of AI and technology,” stated Rajeev de Mello, global macro portfolio manager at Gama Asset Management. “The Fed’s easing measures are benefiting the tech sector, and as the year draws to a close, more cautious investors are looking to strengthen their positions.”
Marc Bindschaedler, an equity specialist in emerging markets at Vontobel Asset Management, noted that China is just beginning its AI investment cycle, leading to a renewed interest in emerging market stocks. However, he also cautioned that the momentum-driven rally might lead to a swift downturn.
In the credit market, Romania plans to issue new euro-denominated bonds, while Kenya is set to sell eurobonds to repurchase the 2028 memo. Argentine dollar bonds appeared to close in the afternoon as local reports indicated that Economy Minister Luis Caputo and Central Bank President Santiago Bausiri are traveling to the US on Friday to discuss a swap line.
Meanwhile, strategists at Citigroup have suggested capitalizing on the South African rand’s performance. “The US government shutdown has had implications for our market as a stronger emerging market currency, making the rand work fairly well in light of the clearer domestic situation,” they noted. “While there are tactical advantages at this level due to the short-term trading, our overall medium-term outlook on the currency remains optimistic.”
