The benchmark for developing stocks fell as much as 2.3% Friday, the most intraday in a year, with the information technology sector accounting for over half of the decline. The sector is the biggest group on the MSCI Index, accounting for almost a quarter of its weight.
Taiwan Semiconductor Manufacturing Co., the developing world’s flagship artificial-intelligence play, dropped 6% to the lowest in almost two months. Samsung Electronics Co. and SK Hynix Inc. plunged by the most in years.
Investors are pulling money from technology stocks amid concerns over elevated valuations and turbulence around the US presidential elections. The equity rally in emerging markets this year has been largely driven by optimism around AI, making it vulnerable to any doubts about the earnings potential of investments in the sector.
The selloff “looked slightly inevitable,” said James Johnstone, co-head of emerging & frontier markets at Redwheel.
“Investors are beginning to look at shifting some exposure from the digital world to the real world,” he said. “AI spend might be slowing, just when we hit record valuations across the semiconductor chain. Never a good combination.”
Currencies
MSCI’s index for developing currencies edged higher after weaker-than-expected US jobs data fueled bets on an increase in the number or size of rate cuts by the Federal Reserve. The gauge gained 0.3%, extending a four-day winning streak and headed for the highest level since the end of May.
Friday’s US data showed hiring slowed by more than forecast in July and the unemployment rate unexpectedly climbed to the highest level in nearly three years.
“The market is starting to get excited about a potential 50bps cut from the Fed at the next meeting which is a bit extreme,” said Brad Bechtel, global head of foreign exchange at Jefferies.
Latin American currencies were mixed, with the Mexican and Colombian pesos underperforming most peers, while the Brazilian real and Chilean peso gained.
Mexico’s peso plunged as much as 1.9% to the lowest level since March 2023 before paring losses, as a jump in the Japanese yen undermines the appeal of carry trades in the region. Carry trades typically involve traders borrowing at lower rates in developed markets to invest in higher-yielding assets in the emerging world.
Though a reduction in US interest rate is a positive for emerging markets, the latest data added to warning signs of a slowing US economy. That, combined with a struggling Chinese economy, signal that Latin America’s two major engines of economic growth are malfunctioning, according to Juan Perez, director of trading at Monex USA.
“With Latam, the overall situation is worrisome,” said Perez. “With the carry-trade losing its appeal, as the safe- haven yen looks expensive, there is little reason to celebrate much about Latam currencies.”
