Emerging Markets Surge Amid US Shutdown and Economic Uncertainty

In a remarkable start to the quarter, emerging market stocks rallied on Wednesday, as investors shifted focus from the US government shutdown to regional economic data. The MSCI index of emerging market equities rose by 0.45%, having experienced a 10% increase in the previous quarter, marking its third consecutive quarter of gains. Year-to-date, the index has surged by over 25%, marking its best performance since 2017 as investors diversify away from Wall Street amidst global trade uncertainties and high US valuations.

Morgan Stanley suggests that emerging market stocks are near their mid-2026 bullish targets, although they emphasize that growth sustainability remains uncertain due to ongoing risks. The US government shutdown has cast a shadow over global markets, potentially delaying the release of critical employment data that could influence interest rate predictions. US stock futures dipped nearly 1%, and the dollar fell to a one-week low as Congress failed to avert the shutdown.

In Central-Eastern Europe, the Polish zloty and Hungarian forint saw gains, buoyed by signs of economic stabilization. Warsaw stocks increased by 0.4%, marking a dramatic annual gain of over 29%. On the other hand, manufacturing activity in the Czech Republic weakened, and its currency remained stable ahead of parliamentary elections. Meanwhile, the Indian rupee steadied, with the central bank maintaining its policy rate while signaling potential cuts.

(With inputs from agencies.)