MSCI EM index surges 23% in best quarter since 2009 on AI rally

The MSCI Emerging Markets Index surged 23% in the second quarter, its best performance since June 2009, as Asia AI tech stocks powered the rally while a strengthening dollar and rising rate-hike expectations capped currency gains.

"The semiconductor memory supercycle is one of the most powerful and prominent themes that is still not fully priced," said Timothy Moe, chief Asia equity strategist at Goldman Sachs.

South Korea's KOSPI led regional gains with a 125% advance this year, its strongest first-half performance since at least 1990, driven by Samsung's 183% rally and SK Hynix's 310% surge. Taiwan's TWII added 56%, while Japan's Nikkei 225 climbed 38%. The MSCI Asia Pacific ex-Japan Index is projected to deliver mid-teen returns in the second half, supported by earnings growth of 60% in 2026 and 22% in 2027, Goldman said.

The rally faces headwinds from a strengthening dollar near a one-year high and rising expectations for a Federal Reserve rate hike, which have pushed emerging-market currencies into a 1% monthly decline. Goldman recommended investors maintain overweight positions in North Asia — favoring South Korea, Taiwan, Japan and China's domestic A-share market — alongside technology hardware, capital goods and banks.

AI Boom Broadens Beyond Chipmakers

The AI-driven rally has extended beyond semiconductor names into power infrastructure and defense spending, reinforcing the case for commodities. Goldman said demand growth in copper will continue outpacing mine supply for years as investment in electricity networks, renewable energy, electric vehicles, defense and data centers accelerates. The bank raised its end-2026 London Metal Exchange copper forecast to $13,735 a metric ton and said prices may need to reach around $15,000 by 2035 to incentivize sufficient new supply.

Goldman also maintained its gold forecast of $4,900 an ounce by end-2026, citing sustained central-bank buying as emerging-market reserve managers diversify away from traditional reserve assets. The bank argued that geopolitical risks and concerns over fiscal sustainability should continue supporting prices over the medium term.

Currency Headwinds Persist

The dollar index held steady around 101.4, supported by lingering geopolitical uncertainty from a fragile U.S.-Iran ceasefire and the rising prospects of a Fed rate hike this year. Across emerging Asia, currencies remained broadly stable, with the Malaysian ringgit rising 0.6% to 4.063 per dollar, its highest in nearly two weeks. The Indonesian rupiah advanced to 17,860 per dollar, while the South Korean won fell 0.6% and the Taiwanese dollar edged 0.2% lower.

"Across EM Asia, regional currencies are broadly stable, with the lack of a sustained spike in oil prices easing pressure on net energy importers such as India, Thailand and the Philippines," said Lukman Leong, an analyst at Doo Financial Futures.

The divergence between equity gains and currency weakness may increase volatility in emerging-market portfolios. Goldman said close to 80% of year-to-date regional market performance can be explained by earnings growth or revisions to earnings growth forecasts, adding that markets are "trading earnings to a greater extent than before."

This article is for informational purposes only and does not constitute investment advice.