EMERGING MARKETS-EM equities gain as AI optimism outweighs Trump's Fed threats; South African stocks soar

By Ragini Mathur and Twesha Dikshit

(Reuters) - Emerging market equities advanced on Monday with artificial intelligence-driven optimism in Asia outweighing a range of geopolitical news, while precious metals gained and the dollar weakened after fresh threats to the Federal Reserve's independence.

The MSCI emerging market stock index .MSCIEF gained 0.9% after ending the previous week 1.6% higher. A corresponding currency gauge .MIEM00000CUS was little changed, despite the U.S. dollar falling the most in three weeks.

President Donald Trump's administration escalated pressure on the Fed, threatening to indict Chair Jerome Powell over congressional testimony about a renovation project—a move Powell called a "pretext" to influence interest rate decisions.

"The latest ramping-up of the Trump administration’s pressure on the Federal Reserve has put a dampener on what had been a good start to the year for the U.S. dollar," Capital Economics' economists said in a note, while saying they remained positive on the U.S. dollar.

Market reaction remained measured as investors awaited clarity on implications for the Fed's autonomy and the near-term interest rate trajectory.

Growing unrest in Iran and Trump's threats to intervene have added to the geopolitical challenges markets face at the start of 2026, supporting safe-haven assets like gold and other precious metals.

Last week, markets navigated geopolitical upheaval in Venezuela following the U.S. capture of President Nicolas Maduro. Many investors viewed this positively, expecting U.S. actions to facilitate market-friendly reforms across the Latin American region.

The South African rand ZAR= climbed to its strongest level in over three years, up 0.4% against the greenback, helped by metals prices, a major South African export.

The benchmark stock index .JTOPI jumped 1.3% and touched an intraday record high. The country's benchmark 2035 government bond ZAR2035= also gained, with the yield falling five basis points to 8.285%.

In emerging Europe, Hungary's forint EURHUF= fell 0.7% against the euro, while the country's benchmark index .BUX was little changed. Hungary's industrial output declined by an annual 5.4% in November, official preliminary data showed, exceeding analyst expectations of a 2.2% drop.

Romania's share index .BETI advanced 1.6%. Turkey's benchmark equity index .XU100 rose 1%, while the lira TRY= weakened 0.2%.

Over in Asia, equities gained on AI optimism with indexes in South Korea .KS11 and Taiwan .TWII rising 0.8% and 0.9%, while Hong Kong's Hang Seng Index .HSI added 1.4%.

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