Emerging markets enter the year-end trading window between Christmas and New Year’s Eve facing a familiar mix of low liquidity, cautious positioning and selective opportunity. The final week of the year is traditionally thinly traded, yet it often provides signals about investor sentiment heading into January, particularly across equities, currencies and local debt in developing economies.
Liquidity conditions and market tone
Trading volumes across emerging markets typically decline sharply during the final days of December as global investors reduce risk exposure and desks operate with limited staffing. This environment tends to exaggerate price movements without necessarily reflecting changes in fundamentals. Equity indices may drift rather than trend, while currency pairs can show short-lived volatility driven by positioning rather than macro news. Historically, the period favours stability over strong directional moves, unless triggered by unexpected policy or geopolitical developments.
Equities: selective support, limited upside
Emerging-market equities often benefit from modest year-end portfolio rebalancing, particularly where managers seek to align holdings with benchmark weights ahead of reporting dates. This can provide short-term support to larger, more liquid names. However, upside is usually capped by low participation and a reluctance to initiate new positions before the new year. Investors tend to defer fresh allocations until January, when liquidity improves and macro data flow resumes.
Currencies: vulnerable to thin trading
Emerging-market currencies are especially sensitive during the Christmas-to-New-Year window. Reduced liquidity in global foreign-exchange markets can amplify moves triggered by shifts in US dollar sentiment or changes in risk appetite. While sharp sell-offs are uncommon without a catalyst, smaller currencies can experience abrupt swings. Central banks generally avoid major interventions or announcements during this period, reinforcing the view that any volatility is likely to be temporary.
Fixed income: carry remains the anchor
Local-currency bonds and high-yield emerging-market debt tend to remain relatively stable over the holiday period, supported by carry rather than price appreciation. With few policy decisions scheduled and limited issuance activity, bond markets often trade sideways. Investors focused on income typically maintain positions, particularly where inflation trends have stabilised and real yields remain attractive compared with developed markets.
Key risks and potential catalysts
While the period is usually quiet, risks persist. Unexpected inflation data, commodity price swings or sudden shifts in developed-market interest-rate expectations can spill over into emerging markets even during holiday trading. Political headlines can also have an outsized effect when liquidity is thin. Conversely, positive surprises are more likely to influence positioning in early January rather than during the final trading days of the year.
Outlook into the new year
Between Christmas and New Year’s Eve, emerging markets are expected to trade in narrow ranges with a cautious bias. The week is less about performance and more about positioning for the year ahead. Early January typically brings renewed inflows, clearer trends and a reassessment of growth, inflation and policy trajectories. As such, the year-end window serves as a holding pattern — quiet on the surface, but closely watched for signals of what the new year may bring.
Newshub Editorial in Global Markets – 24 December 2025
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