EMERGING MARKETS-EM equities hit record high on receding geopolitical rhetoric, AI optimism

By Ragini Mathur and Twesha Dikshit

Jan 16 (Reuters) - Emerging market stocks advanced on Friday, with the broader share index notching a fresh record high, as investors monitored developments including a trade deal between the U.S. and Taiwan, while currencies were subdued against a stronger dollar.

Stellar results from Taiwanese chipmaker TSMC 2330.TW on Thursday reinvigorated the AI investment theme, with indexes in Taiwan .TWII and South Korea .KS11 at all-time peaks.

"We maintain our conviction in the structural trend of AI and believe that innovation will remain key to long-term equity performance," said analysts at UBS.

Also on Thursday, the U.S. and Taiwan clinched a trade deal that cuts tariffs on many of Taiwan's exports, and directs new investments in the U.S. technology industry.

The MSCI emerging markets stock index .MSCIEF gained 0.5%, eclipsing Wednesday's record. The index was on track for its fourth consecutive week of gains, up over 2%.

Markets this week dismissed a range of geopolitical threats, cheering on a softening of rhetoric from U.S. President Donald Trump, who adopted a wait-and-see approach after earlier threats of military intervention in Iran, and said he would not fire Fed Chief Jerome Powell.

JPMorgan data showed EM equity funds clocked record inflows this week at over $9.7 billion, the second-largest weekly inflow in the brokerage's tracking history.

The Hungarian .BUX and the Romanian .BETI stock indexes gained 0.7% and 1.3%, respectively, hovering around record highs.

Poland's benchmark index .WIG20 was flat, however. The 2025 budget deficit was more than 10 billion zlotys below the level planned for, Finance Minister Andrzej Domanski said.

Turkey's stock index .XU100 rose 0.8%, trading at peak levels.

CURRENCY MARKETS UNDER PRESSURE

The U.S. dollar hovered near a six-week high after a slew of upbeat economic releases. The MSCI EM currency gauge .MIEM00000CUS ticked down 0.1%.

The South African rand ZAR= eased 0.3% against the dollar, having gained earlier in the week, aided by rising prices for gold, the country's major export, on safe-haven demand.

In emerging EMEA, the Hungarian forint EURHUF= dropped 0.3% against the euro, while the Polish zloty EURPLN= and the Czech crown EURCZK= edged down 0.2% each. All were set for weekly losses.

Lebanon's international bonds were a bright spot, with many maturities hovering close to the six-year highs hit on Thursday, bolstered by expectations for a potential change of power in Iran.

In other major developments, International Monetary Fund chief Kristalina Georgieva met top Ukrainian officials in Kyiv on Thursday, telling Reuters she expected to send a new $8.1 billion lending program to the Fund's board for approval in coming weeks.

Georgieva also said the IMF was ready to support Venezuela but needed its major shareholders to recognise its leadership, and those authorities to seek assistance.

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