Emerging market stocks experienced their steepest weekly losses in nearly three weeks, with MSCI's global EM stocks index dropping 2.7%. This downturn was largely driven by a sell-off in chip stocks and heightened geopolitical tensions between the U.S. and Iran, which fueled concerns about global energy supply and economic prospects. Taiwanese and South Korean markets were especially affected, with Taiwan's tech-heavy benchmark tumbling 6.5% and the South Korean KOSPI ending the week nearly 9% down, marking its worst week since March 2025. This occurred despite TSMC reporting record quarterly profits, as investors worried about the sustainability of the AI-driven rally and rising capital expenditure.
While emerging market stocks struggled, the currencies gauge only dipped 0.2% and was poised for marginal weekly gains. This was partly shielded by rising oil prices, which were heading for their biggest weekly gain in nearly three months. The International Energy Agency warned about global energy security risks if oil supplies through the Strait of Hormuz don't increase. Most emerging European currencies, such as the Hungarian forint and Polish zloty, traded lower against the euro. The U.S. dollar index, meanwhile, held steady but was set for weekly declines as soft U.S. inflation reports lowered expectations for an imminent Federal Reserve rate hike in July.
Additional country-specific market movements included South Africa's rand falling 0.5% and its stocks sliding 1%, while Turkey's lira was muted and its stocks dropped 1.8%. Malaysia's economy grew 5.8% year-on-year in Q2, with its stocks up 0.8%, although the ringgit weakened marginally against the U.S. dollar. Chinese blue-chip stocks fell 3.6%. Analysts from Barclays noted that inflation has surprised to the downside in most emerging markets due to contained food prices, but suggested a "hiking premium" might still be warranted given the direction of U.S. rates and volatile energy prices. Fitch was also scheduled to review its ratings on Turkey and Kenya.
