EM stocks extend rally on rate-cut hopes; investors parse TSMC earnings

By Niket Nishant

Oct 16 (Reuters) - Emerging market stocks advanced on Thursday, extending gains from the previous session, as expectations grew that the U.S. Federal Reserve could soon start cutting interest rates, while AI optimism was also bolstered by earnings from Taiwan's TSMC.

Hints of Fed dovishness tend to sap strength from the dollar, lifting the pressure on emerging market currencies and giving local assets a brighter allure.

Investors were also gearing up for earnings updates from the July-September quarter, after what has so far been an upbeat year for corporates in developing economies despite trade uncertainty.

TSMC 2330.TW, the world's largest advanced chipmaker, raised its full-year revenue forecast on Thursday, citing robust demand for artificial intelligence, sending U.S.-listed shares of the Taiwanese company TSM.N up 1.3%.

"We expect the rally to extend into year-end amid Fed cuts, AI demand, improving earnings sentiment and supportive Q4 performance seasonality," analysts at Goldman Sachs wrote in a note.

An MSCI index of emerging market equities .MSCIEF climbed 0.8%, trading just shy of levels seen in June 2021, with stocks in Taiwan .TWII and Korea .KS11 at record highs.

However, a sense of wariness was still evident following a recent flare-up in trade uncertainty as an EM currencies gauge .MIEM00000CUS was flat against the dollar =USD.

U.S. Treasury Secretary Scott Bessent insisted that Washington did not want to escalate a trade conflict with Beijing. Chinese state media, however, issued a seven-point rebuttal to U.S. calls for Beijing to wind back its rare earth controls, which are at the heart of the latest tensions.

Trade negotiations remain front and center as Brazil and South Korea advance tariff negotiations with the United States. South Korea's chief presidential policy adviser also expressed optimism about finalising a deal with Washington.

Additionally, equities in India .NSEI, .BSESN also gained after Trump said Indian Prime Minister Narendra Modi pledged to stop buying Russian oil, a move that had previously triggered U.S. tariffs on India.

U.S. tariffs had weighed on the rupee INR= this year, which was hovering close to a record low of 88.8. To shore up the rupee, the country's central bank is estimated to have sold $3 billion to $5 billion in spot and non-deliverable forward markets, traders said, marking its largest intervention in months.

In emerging Europe, Hungary's forint EURHUF= hovered near to the 16-month low it hit earlier this month. Ratings agency Fitch said that recently flagged tax cuts could create additional risk to its deficit and debt projections amid weak growth.

Turkey's main BIST 100 share index .XU100 edged 0.6% higher, after snapping a five-day losing streak on Wednesday.

Still, the country's banking index .XBANK is set for its worst quarterly loss since the first three months of 2021, against the backdrop of political disruptions.