Emerging-Market Stocks Gain as Fed’s Warsh Backs AI Optimism

Emerging-market equities advanced after the Federal Reserve expressed optimism over the impact of artificial intelligence on the economy.

MSCI EM Index extended gains to 1%, marking its first gain this week, after Fed Chairman Kevin Warsh said AI is set to be a huge benefit to the US economy. In contrast to broader market optimism, Indonesian stocks tumbled by the most in nearly three decades after MSCI Inc. said the country no longer merits emerging-market status.

MSCI said that it is consulting on a proposal to reclassify Indonesia as a standalone market, saying a downgrade to frontier status would not adequately reflect the severity of the country’s market problems. The rupiah lagged all Asian peers versus the dollar on Monday.

While the proposed reclassification may be perceived to be “negative at the margin for Indonesian assets,” the immediate impact on flows may be limited, said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. “The bigger focus is how this may affect investor sentiment.”

In a further sign of the boost to the economy from AI, Malaysia’s first-quarter gross domestic product expanded by 5.3% from the previous year, beating economist estimates as AI continued to bolster exports.