Emerging market assets saw a significant rally on Monday after a preliminary agreement between the U.S. and Iran to end their three-month conflict. This pact led to a surge in global risk appetite, causing MSCI's gauge tracking EM stocks to gain 2.8% and its corresponding currencies index to rise by 0.3%. Markets had already shown positive reactions on Friday anticipating the peace deal.
The agreement, confirmed by U.S. President Donald Trump, reopened the critical Strait of Hormuz. This immediately sent oil prices down by nearly 5% to three-month lows, easing inflation fears and prompting a rebound in bond markets, with many frontier market international bonds recovering to pre-war levels. Energy-dependent nations experienced the largest gains, including Sri Lanka's 2038 bond jumping over 2 cents to trade just above 99 cents on the dollar, and Egypt's debt rising 1.8 cents.
In Asia, equity markets saw substantial gains, led by South Korea and Taiwan, which advanced 5.2% and 2.8% respectively, reaching over 100% and 50% year-to-date gains fueled by an AI rally. Chinese stock benchmarks also rose 1.6% and 2.4%, and the yuan touched its strongest level in over three years. India's rupee appreciated 0.5%, with the Indonesian and Sri Lankan rupiahs up 1% each. South Africa's stocks jumped 3%, and the rand strengthened 0.6% due to stronger gold prices. Turkey's benchmark advanced 2.7%. The Hungarian forint gained 0.6% against the dollar, making it one of the best-performing currencies in 2026 with over 7.7% yearly gains.
