The TSMC leak case + semiconductor tariff threats, chip stocks drag down emerging market stocks
Due to U.S. President Trump's threat to raise semiconductor tariffs and the TSMC leak incident, chip stocks dragged down emerging market equities. The MSCI Emerging Markets Index fell by 0.2%, primarily due to TSMC's stock price dropping by 2.2%. Market trading was light as investors reassessed the outlook for emerging markets, especially against the backdrop of geopolitical tensions and a weak consumer economy
According to Zhitong Finance APP, due to U.S. President Trump's threat to raise tariffs on the semiconductor industry and the leak of TSMC's 2nm chip process causing panic among investors, semiconductor stocks dragged down the benchmark index of emerging market stocks. The MSCI Emerging Markets Index fell by 0.2%, primarily due to the decline in TSMC's stock price. In terms of currencies, Asian currencies performed the worst, while the South African Rand and Mexican Peso saw some gains. Aside from TSMC, the index showed mixed performance. Chinese e-commerce stocks rose, led by Tencent, while South Korean chip manufacturers experienced declines.
After seven months of gains (the longest rally since 2017), investors are reassessing the outlook for emerging market stocks. Trump's tariff measures have harmed economic growth in developing countries, many of which have yet to reach agreements, and some countries (such as India) even face the threat of punitive tariffs.
Despite a still weak consumer economy and ongoing geopolitical tensions, expectations for the Federal Reserve to ease monetary policy have improved, providing a slightly positive backdrop for the market. With the Northern Hemisphere in summer vacation, market trading is light. As of the time of writing, the trading volume of the MSCI Emerging Markets Index has fallen 24% compared to its 30-day average.
TSMC's stock price in Taiwan fell by 2.2%, marking the largest drop since June 23, after prosecutors arrested six individuals suspected of stealing the company's trade secrets. This triggered an investigation into potential national security breaches involving key figures in the global tech industry. Meanwhile, Samsung Electronics and SK Hynix both saw their stock prices drop by at least 1.6% in Seoul.
A series of negative news is weighing on the chip industry. In addition to TSMC's leak scandal, investors are also awaiting further actions from Trump after he stated that the U.S. would announce tariffs on semiconductor imports "in about a week."
Global earnings news has also dampened market sentiment. In the U.S., Super Micro Computer (SMCI.US) saw its stock plummet after lowering sales forecasts, GlobalFoundries (GFS.US) experienced a sharp decline due to not meeting expectations, and AMD (AMD.US) warned that its prospects for re-entering the Chinese market are difficult to predict.
For those focused on technical indicators, the decline in emerging market stocks occurred after the MSCI Emerging Markets Index's monthly relative price index reached 68, close to the so-called oversold level of 70 before the previous sell-off. The index has fallen about 2% from its peak on July 24.
Ukrainian sovereign dollar bonds saw the largest gains in the Bloomberg Emerging Markets Sovereign Total Return Index. Investors are paying attention to the next steps in the Russia-Ukraine war, with Russia considering concessions, including a pause in airstrikes. Meanwhile, the country has appointed the head of the Ukrainian Economic Security Bureau, fulfilling the requirements of the International Monetary Fund (IMF) Indian local currency bonds fell as the country became a target of Trump's harshest tariff measures, moving away from nearing a trade agreement with the United States, including additional tariffs imposed by the U.S. on India for purchasing oil from Russia. The yield on India's 10-year bonds rose by 7 basis points to 6.40%. The Reserve Bank of India kept interest rates unchanged amid a moderate inflation outlook, leading to a rise in the rupee.
The South African rand performed well in the currency market alongside the Mexican peso. Piotr Matys, senior currency analyst at In Touch Capital Markets, stated that the rand's rise was driven by increased expectations of a Federal Reserve rate cut. He said, "The rand is the main beneficiary of the market fully digesting the expectation that the Federal Reserve will cut rates by 25 basis points at its next meeting in September. Previously, disappointing U.S. non-farm payroll data had quickly intensified political pressure from President Trump on Federal Reserve Chairman Powell to cut rates."
