Emerging Markets-Stocks slide on Fed hike fears, AI spending concerns; FX mixed

Renewed concerns over heavy AI spending after Alphabet and Tesla forecast higher capex also weighed on sentiment, with hyperscalers Microsoft, Meta Platforms and Amazon set to report next week. They are likely to give investors more cues on the sustainability of an AI-driven rally in markets like South Korea and Taiwan that are up above 50% for the year. MSCI's global EM stocks index fell 2.5%, although it remained on track for modest weekly gains thanks to an earlier recovery in Asian tech-heavy bourses. On Friday, South Korea's KOSPI slumped nearly 6%, leading selloff in Asian equities, as chipmakers SK Hynix and Samsung slid 8.3% and 7.6% respectively, while Taiwan's tech-heavy benchmark slipped 2.7%. An index tracking emerging market stocks fell on Friday, as intensifying hostilities in the Middle East and higher oil prices fuelled expectations of a Federal Reserve rate hike next week, while currencies were mixed against a steady dollar. Oil prices looked set to log a fourth straight weekly gain, surging 35% to cross $100 in the previous session, with Yemen's Houthi attacking tankers in the Red Sea and U.S. President Donald Trump threatening "major military punishment" against Iran and its Houthi allies. The surge prompted traders to more than double their expectations of a Fed rate increase next week to a one-in-three chance, according to CME Group's FedWatch tool. However, some investors argued that markets may be aggressive in pricing the risk for a hike. "We need to see second round effects that are independent of the move in energy prices and we're not seeing signs of that yet," said Maximilian Kunkel, chief investment officer for CEEMEA at UBS. "Such second round effects could be a significant increase in unit labour costs, which tends to be a big driver of inflation longer term. However, we're not seeing a significant acceleration in wage growth. On the flip side, productivity is actually starting to move up given the use of technology." Bucking the broader trend, MSCI's index tracking Central and Eastern Europe gained 1%, with Polish and Hungarian benchmarks up 0.7% and 0.4%, respectively. Energy-laden Romanian benchmark was down 0.2%, though heading for its longest weekly winning streak in seven years, boosted by higher oil prices. MSCI's emerging market currencies gauge was flat against the U.S. dollar and heading for weekly gains. Most Asian currencies were trading flat to higher, while currencies in the emerging Europe were muted against the euro, with the Hungarian forint edging 0.07% lower, while the Polish zloty traded 0.1% higher. Kunkel added that UBS continues to expect positive return from emerging market currencies, citing interest rate carry as the primary driver of performance. South Africa's rand fell 0.6% and extended declines from previous session's sharp losses after the central bank unexpectedly kept rates on hold. The currency was heading for its biggest weekly drop in four months. The Turkish lira declined 0.2%. The country's central bank left benchmark lending rates unchanged on Thursday for a fourth consecutive meeting as widely expected. Moody's is expected to review Turkey's credit rating later in the day. Separately, Sri Lanka's international sovereign bond maturing in 2033 slipped 0.8%, according to data from Tradeweb, after the Trump administration imposed new tariffs of 10% and 12.5% on goods from 60 trading partners. Pakistan's and Indonesian bonds also came under pressure, edging 0.4% lower.

Emerging Markets-Stocks slide on Fed hike fears, AI spending concerns; FX mixed

AI spending concerns weigh on sentiment

Emerging market stocks fall as rate-hike worries rise

Currencies mixed; EM bonds and regional markets move unevenly

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