Emerging-market assets experienced a broad decline this week, with equities registering their worst performance since March. The MSCI Emerging Markets Currency Index extended its losing streak to a fourth session, while the Bloomberg Dollar Spot Index reached a new high for 2026. This downturn was largely attributed to a risk-off mood triggered by a significant selloff in South Korean technology shares and an increasingly hawkish Federal Reserve.
On Friday, MSCI's broadest index of Asia-Pacific shares outside Japan dropped 3.8%, bringing its weekly loss to 5.4% after hitting a record high earlier in the week. South Korea's KOSPI index plunged 8.2% on Friday, triggering a circuit breaker and ending the week down 9.4%, though it still posted a 62% gain for the quarter. SoftBank Group also saw a more than 12% decline, while SK Hynix and Samsung Electronics fell 8% and 9% respectively, as investors reconsidered the impact of AI infrastructure costs on margins.
The decline in tech stocks was fueled by Apple's decision to raise prices on iPads and MacBooks to offset rising memory and storage chip costs, which wiped approximately $250 billion off its market value. Analysts suggested this move highlighted that the AI boom could lead to inflation for buyers rather than just growth for companies. Micron's shares, however, surged almost 16% to a record high after a strong earnings report, underscoring where profits are currently flowing in the semiconductor industry.
Currency markets also saw significant movement, with the Japanese yen teetering near a 40-year low against the dollar at 161.82, despite market expectations for a rate hike from the Federal Reserve in September. The dollar index held near 101.46, its strongest level since May 2025, reflecting broader dollar strength. Treasury yields remained steady, with 2-year yields at 4.125% and 10-year yields at 4.402%. Precious metals had a tough month, with spot gold down 11% to $4,020 an ounce and silver down 24% to $57.3 an ounce.
This week's market volatility was also influenced by month-end and quarter-end rebalancing flows, which contributed to choppy prices in large tech companies that had previously outperformed. The overall sentiment shifted from euphoria over the AI boom to caution regarding rising input costs, increased capital expenditure needs, and funding demands, making investors more selective about their AI exposures.
