Emerging market stocks and currencies displayed a mixed performance as escalating US-Iran hostilities and concerns about overvalued tech stocks influenced investor sentiment. MSCI's global EM stocks index dropped by 2.7%, tracking towards its most significant weekly losses in almost three weeks, while the currencies gauge saw a slight dip of 0.2%, though it was poised for marginal weekly gains. The International Energy Agency (IEA) warned about potential global energy security risks if oil supplies through the Strait of Hormuz remained constricted, pushing oil prices towards their biggest weekly gain in nearly three months.
Semiconductor stocks, despite positive news like TSMC's strong second-quarter earnings and ASML's raised forecast, faced downward pressure due to profit-taking and anxiety over the sustainability of the AI-driven rally. Swissquote Bank Senior Analyst Ipek Ozkardeskaya noted that the market's subdued reaction to impressive results suggested that chipmaker valuations had outpaced fundamentals, causing investor discomfort with substantial AI infrastructure spending that could raise leverage risks. The Philadelphia Semiconductor Index consequently shed 10% last week, now standing 20% below its June high.
Geopolitical tensions, particularly in the Gulf between the US and Iran, intensified fears of prolonged energy supply disruptions, dampening the global economic outlook and adding market strain. Taiwan's tech-heavy benchmark index plunged 6.5%, the largest drop since the "Liberation Day" tariffs imposed by former US President Donald Trump, while Chinese blue-chip stocks fell by 3.6%. European emerging markets also saw declines, with Polish blue-chip stocks slipping 0.8% and Hungary's main index declining 0.5%. The dollar index remained steady but was on track for weekly declines as softer US inflation reports tempered expectations for a Federal Reserve rate hike in July.
