(Bloomberg) — Emerging-market currencies held steady as the dollar weakened on Monday even as the US capture of Venezuela’s leader Nicolas Maduro increased the perception of geopolitical risks.
The MSCI benchmark for EM currencies recovered from losses during the trading session and closed flat while the dollar slipped 0.1%. Currencies from Colombia and Brazil climbed, shrugging off early morning’s weakness.
“EM currencies are back on the gaining trend established last year,” said Juan Perez, senior director of trading at Monex USA. “This US operation in Venezuela may not translate into strong advancement for the dollar. The buck is losing appeal as a safe-haven.”
The dollar lost its strength after a reading of US manufacturing activity shrank last month by the most since 2024, wiping out the greenback’s gain following the ouster of Maduro over the weekend.
Impacts of the US action in Venezuela are reverberating across markets. Dollar bonds in Colombia slumped to among the worst performers in emerging markets as tensions between US President Donald Trump and Colombian President Gustavo Petro grew in the wake of Maduro’s ouster. The Colombian peso dropped as much as 1.9% before reversing losses.
Venezuela bonds rallied Monday, delivering profits to hedge funds and other investors who scooped up the debt at deeply distressed prices. The defaulted notes by the government and its state-run oil company PDVSA jumped to around 40 cents on the dollar.
Elsewhere, developing-nation governments and companies are rushing to global capital markets to sell bonds at the start of the year. Mexico is offering notes due in 2034, 2038 and 2056, while Chile is selling notes denominated in both dollar and euro. Saudi Arabia have also joined the rush in an effort to help fund huge projects meant to diversify the economy from oil.
The MSCI Emerging Markets Index rose 1.6% on Monday, closing at the highest level on record. Taiwan Semiconductor Manufacturing Co. accounted for nearly half of the gauge’s gains after Goldman Sachs Group Inc. raised its price target for the supplier of Apple Inc. and Nvidia Corp. Other major movers included Samsung Electronics, SK Hynix and Alibaba Group Holding Ltd.
Optimism over the AI prospects of Asian companies and expectations for additional Chinese stimulus have also driven inflows, as money managers increasingly view the asset class as under-owned.
“Near term, emerging markets can stay supported, but it’s likely a selective, bumpier grind rather than a straight-line rally,” said Charu Chanana, chief investment strategist at Saxo Markets. “The upside is that Asia tech and AI supply-chain momentum can keep pulling the index higher, especially if global risk appetite stays firm.”
