EM Assets Pare Monthly Rally on Slump in Metals, Trump Fed Pick

(Bloomberg) — Emerging market assets are falling for a second straight session on Friday, paring their monthly gains, as metals plunge and the dollar surges to its best day since July after President Donald Trump announced his pick for the top job at the Federal Reserve.

Trump nominated Kevin Warsh, who’s seen as less supportive of deep rate cuts and more worried about inflation. Gold and silver suffered their biggest slides in decades, while the dollar surged toward its best day since July. A gauge of South African precious metals and mining stocks dropped as much as 9.4% in Johannesburg, the most since October.

At the same time, concerns over the sustainability of artificial-intelligence investments hit Asian tech stocks that had powered this year’s gains. The MSCI index of developing world stocks has had its best start in 14 years, though it tumbled 1.9% Friday, the most in six weeks, It is still up almost 9% in the month.

“Some profit-taking is not unreasonable after such a euphoric start to the year for EM equities,” said Hasnain Malik, head of emerging-markets equity and geopolitics strategy at Tellimer in Dubai. “Concerns over returns on data center capex, for example by Microsoft, cannot exist in the long-run alongside euphoria for semiconductor suppliers further up the value chain.”

The MSCI index tracking developing world currencies is down 0.5%, on pace for its biggest daily drop since November, with the South African rand, a bellwether for risk appetite, dropping more than 2%, the most since April. Still, currencies remained on track for a second monthly advance.

“There’s not a structural change. I think that expectations of global dollar weakness will surely remain for a while longer,” said Daniel Velandia, chief economist at Credicorp Capital Colombia. “We believe that there will still be appreciation pressures in Latin American currencies, but this trend will moderate.”

Investors are waiting to see whether the two-day selloff in EM stocks is a momentary pause or the start of a correction after an $11 trillion rally since last April driven by AI stocks and gold miners. While the dollar remains near a four-year low, supporting the EM outlook, money managers are watching out for risks around Trump’s policymaking and high valuations attached to AI shares.

So far, momentum and sentiment are in emerging markets’ favor. Of the 22 most-traded developing world currencies, 15 have risen in January amid a global macro backdrop that Goldman Sachs Group Inc. analysts characterized as “friendly.”

Brazil’s benchmark stock index is on track to close January with a gain of almost 13%, its best month since November 2020.

Most money managers remain optimistic about further EM gains.

“We’re off to a potentially multi-year cycle where EM can significantly outperform developed markets for the first time in a long time,” Yacov Arnopolin, a senior emerging-markets portfolio manager at Pimco, said at Bloomberg’s Emerging Markets Investment Forum in New York this month.

Elsewhere, Ukraine bonds are rallying as Trump said Russian President Vladimir Putin vowed to halt the bombing of cities and towns in Ukraine as the country prepares for an extreme cold snap.

Colombia raised interest rates for the first time since 2023 as a record minimum wage increase stokes inflation pressure. The central bank lifted its benchmark rate by one full percentage point to 10.25%, which was higher than expected by all 31 economists surveyed by Bloomberg.

–With assistance from Nicolle Yapur, Carter Johnson, Maria Elena Vizcaino, Ray Ndlovu, Leda Alvim, Pratigya Vajpayee and Carolina Wilson.