Emerging markets rise to near two-year high but US inflation is a risk

Emerging market stocks were rising Tuesday and headed for their best close since June 2022, aided by a surge in the shares of an Asian chipmaker.

MSCI’s index for developing-nation equities climbed 0.6% by 8:34 a.m. in Johannesburg. The rise was led by Taiwan Semiconductor shares, which reached a record high following news the US plans to award billions of dollars in grants and loans to help the chipmaker build factories in Arizona.

The stock gauge in general has been making gains over the past month, supported by a low volatility environment which ramped up investors’ appetite for the assets, according to Marija Veitmane, head of equity markets research at State Street Global.

However, a stronger-than-expected inflation reading from the US Wednesday, which would be the third month in a row, “could produce a spike in volatility and disrupt the strong equity rally, particularly in the countries with weaker economic and earnings fundamentals, like many emerging markets,” said Veitmane.

Emerging-market currencies were mixed, with Turkey’s lira falling the most among its peers. 

Turkey announced restrictions on exports to Israel after it opposed planned Turkish aid drops over the Gaza Strip and President Recep Tayyip Erdogan faced criticism for not stopping trade with the country.

The Thai baht was strengthening ahead of a central bank interest-rate decision, where a majority of economists expect a hold.