As the US dollar assets decline, global asset management shifts towards emerging markets. Inflows of funds may trigger a new round of market upswings.

According to Citigroup's analysis, asset management firms with total assets under management exceeding $20 trillion are becoming increasingly optimistic about emerging market stocks, currencies, local currency bonds, and credit, potentially injecting new momentum into the market's record rally. Citigroup found that after researching outlooks from some of the largest asset management companies globally, these funds have increased their long positions in Asian, Latin American, as well as European, Middle Eastern, and African markets. This discovery comes as the MSCI Emerging Markets stock index trading price is nearing historic highs - the index rose 0.2% on Thursday, with a year-to-date increase of nearly 15%. This week, concerns were raised and caused volatility in U.S. stocks following a report on how artificial intelligence will disrupt multiple sectors of the economy, but Asian tech stocks were unaffected. This is because companies in South Korea and Taiwan produce the hardware needed to build artificial intelligence networks. The South Korean benchmark stock index rose by another 3.8% on Thursday, with Samsung Electronics rising by 9%, marking its longest continuous increase since 1986. The market value of the South Korean stock market has recently surpassed that of France, making it the ninth-largest market globally, and it alone has driven a 6% increase in emerging market indices this month. Meanwhile, the S&P 500 index is expected to close flat in February. U.S. stocks fell on Thursday, with NVIDIA Corporation's robust performance guidance failing to reassure investors seeking confidence in the prospects of artificial intelligence. The overall bullish sentiment towards emerging markets is a result of increasing uncertainty in U.S. policies and expanding fiscal deficits, putting pressure on the U.S. dollar. While this has led more investors to diversify their exposure to U.S. dollar assets, there are also growing concerns about increased spending in Japan, Germany, and other developed countries. Citigroup analysts have told clients that emerging markets are receiving more attention "as asset managers seek diversification opportunities outside of the U.S. and see opportunities in emerging markets due to improving fundamentals and a weakening U.S. dollar." Cautious trading Despite little change in the U.S. dollar, most emerging market currencies weakened on Thursday. Some Asian currencies rose, with the New Taiwan Dollar rising by 0.3% on strong foreign inflows, while the Chinese Renminbi and the Indonesian Rupiah also strengthened. However, against the backdrop of falling commodity prices, overall sentiment in emerging market currencies turned cautious during trading, with most Latin American currencies weakening against the U.S. dollar. The Colombian Peso saw significant declines, dropping nearly 4%, marking the largest single-day decline since March 2020. A recent poll showed left-wing Senator Ivn Cepeda leading significantly in the presidential election in Colombia. The neighboring country of Ecuador also raised tariffs on Colombian imports, escalating trade disputes and exacerbating negative sentiment in the market towards Colombian assets. The Peso became the worst-performing emerging market currency on Thursday. Colombian dollar bonds fell across the board, becoming one of the weakest performers in emerging market debt assets. Prices of long-term U.S. dollar-denominated bonds fell by over 1 cent. Alvaro Vivanco, Wells Fargo & Company's emerging markets macro strategist, said, "The March 8 elections are just around the corner, and local yields are soaring." He added that although the trends reflected in the polls are not new, support for incumbent President Gustavo Petro has recently "significantly increased," providing "a higher ceiling" for Cepeda in the elections. Other Latin American currencies were also under pressure. The Chilean Peso fell by nearly 1%, the Argentine Peso by 0.6%, retracting from the four-month high touched earlier this week. The Brazilian Real fell by about 0.3%. In Brazil, Flavio Bolsonaro's presidential campaign momentum is increasing, surprising skeptics who initially saw his candidacy as a strategy to secure a pardon for his father, former President Jair Bolsonaro, who is in prison, rather than a serious candidacy. Many centrists had feared that his candidacy would split the right-wing vote, potentially handing over the October elections to incumbent President Luiz Inacio Lula da Silva. However, his recent rise in the polls challenges this perception. In other markets in the region, Latin American stocks lagged behind, with a regional stock index falling by 0.7%, diverging from the slight rise in the MSCI Emerging Markets index. Nevertheless, Latin American stocks remain one of the best-performing markets globally this year, rising by nearly 20% year-to-date, outperforming the overall emerging markets increase of about 15%. However, there are notable exceptions. The Argentine stock market failed to follow the overall upward trend in Latin America, as enthusiasm surrounding Javier Milei's presidential election victory gradually waned, and concerns about weak corporate earnings in the country intensified. The Argentine benchmark Merval index remained flat, dropping by around 8% year-to-date.