Emerging Market Stocks Rise Every Month This Year, First Time Since 1993

The MSCI Emerging Markets Index is poised for its tenth consecutive monthly gain in October, marking the first time it has rallied every month from January to October since 1993. This sustained performance, driven by an artificial intelligence boom and a weaker dollar, highlights significant capital inflows into emerging market equities, with the index set for a 4.2% advance this month despite a recent slight dip.

Analysis

The MSCI Emerging Markets Index is on track for its tenth consecutive monthly gain in October, a streak last observed in 1993. Despite a marginal 0.6% decline on Friday, the index is set to achieve a 4.2% advance for the month, underscoring significant positive momentum. This sustained performance from January to October signals a robust shift in investor sentiment towards EM equities.

This exceptional rally is primarily fueled by two distinct factors: the global artificial intelligence boom and a weakening U.S. dollar. The AI theme is likely driving capital into technology-focused EM companies, while a softer dollar historically enhances the appeal of non-dollar denominated assets and improves EM debt servicing capacity.

The overall sentiment for emerging markets is strongly positive, with a bullish tone and a high per-ticker sentiment for EEM at 0.85. This indicates strong investor confidence and significant market impact, suggesting a potential re-rating of EM assets. The consistent capital inflows reflect a broader reallocation trend.

Key Decisions for Investors

• Evaluate current portfolio allocations to emerging markets given the sustained bullish momentum and capital inflows
• Monitor the durability of the weaker U.S. dollar trend and the continued expansion of the AI theme as key performance drivers
• Consider potential risks from shifts in global growth forecasts or currency volatility that could temper future EM returns