South Korean AI Rout Drags Emerging Stocks to Three-Week Low

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(Bloomberg) — Developing-world currencies rallied on Thursday after weaker-than-expected US employment data prompted investors to scale back expectations for an October Federal Reserve interest-rate hike, boosting risk assets as the dollar weakened.

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MSCI’s gauge of emerging-market currencies rose 0.2% after US payroll data showed hiring slowed sharply in June, curbing some of the momentum in job growth this year. The report eased concerns that persistent economic strength would force the Fed to raise rates.  

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The South African rand was among the day’s best performers, climbing nearly 1% against the greenback and also helped by higher gold prices. Hungary’s forint also gained about 1%, while major Latin American currencies including the Brazilian real, the Chilean peso and Mexican peso advanced. The Bloomberg Dollar Spot Index, meanwhile, was down 0.5% on Thursday.

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“This is a good print for emerging market currencies as it certainly takes out the urgency on the Fed,” Alvaro Vivanco, emerging market strategist at Wells Fargo Securities, said. “I would expect the South African rand, Brazilian real and Chilean peso to lead the way.”

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A stronger labor-market report would have given the Fed greater scope to focus exclusively on inflation, strengthening the case for a rate hike. Instead, signs of continued softness were likely to reinforce expectations that policymakers can afford to remain gradual, particularly as falling energy prices help ease inflationary pressures.

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Emerging-market equities, meanwhile, pared earlier losses but were still down about 2% amid the AI rout in South Korea. Memory chip firms SK Hynix Inc. and Samsung Electronics Co. lost a combined $290 billion in value to drive a 7.9% slump in South Korea’s Kospi index as investors fretted about the possibility of a capacity glut in the sector. Taiwan Semiconductor Manufacturing Corp. dropped 1.6%. Chinese names also slid, with Yangtze Optical Fibre & Cable and Skyverse Technology Co Ltd. shedding 22% and 16% respectively.

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Given this year’s gains in Asian tech — the Kospi index rallied almost 70% in the April-June period — some investors warn of further declines ahead. 

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“The immediate risk is that the most crowded winners of Q2 – memory, semis, Asian AI supply chain – become a source of profit-taking,” said Florian Ielpo at Lombard Odier Investment Managers. “This is not a broad Asian risk-off move, it is mostly an AI-supply-chain de-risking after a very strong quarter.” 

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Elsewhere, Senegal said it isn’t pursuing a sovereign debt restructuring as it continues negotiations with the International Monetary Fund. Congo is drawing up plans for its first stock exchange as it seeks to attract more investment to an economy that’s benefiting from soaring demand for battery minerals.

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Meanwhile, power producer company Genneia SA filed for an initial public offering in New York, trying to become the first Argentine company to IPO in the US in at least seven years.

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