EM stocks bounce back from war losses, boosted by three Asian chipmakers

Emerging market stocks recouped their losses from the early weeks of the US and Israel’s war on Iran, pushed now to a fresh all-time high by a rally in three Asian semiconductor companies. In addition to helping the world’s EM stock benchmark to a record close, the rally is prompting fresh debate over whether the gauge still offers meaningful diversification from the AI trade reshaping Wall Street, according to the Financial Times.

The MSCI Emerging Markets index rose more than 15% over the past four weeks — double the 10% clip the S&P 500 recorded over the same stretch — clearing the previous high it set in February. The move erases a sharp selloff that hit Asian markets in the opening weeks of the Iran war and lifts the index to roughly 16% above where it began in 2026, extending a five-quarter run of outperformance versus US blue chips, according to TradingView.

The bulk of the rally came from a tightly clustered group of names directly plugged into Nvidia’s accelerator supply chain. Taiwan Semiconductor Manufacturing Company climbed more than 25% this month and — at a market value of about USD 1.8 tn — has displaced Saudi Aramco as the index’s most valuable constituent. Samsung Electronics is also up 32%, and SK Hynix is up by more than 60%. Taken together, the three suppliers now sit at close to a quarter of the entire index.

Local stock markets have also received a shot in the arm: Taiwan’s stock market is on track for its best month in decades, up about 21% in USD terms, while South Korea's Kospi rose 24% — its strongest monthly showing since the 1998 Asian financial crisis.

Turbocharging the rally: Higher AI capital spending in the US. Combined 2026 capex budgets for the largest US hyperscalers — Amazon, Alphabet, Microsoft, Meta, and Oracle — are now projected to exceed USD 600 bn, up 36% y-o-y, with roughly three-quarters of that flowing to AI-related infrastructure, according to Futurum Group and CNBC. That capital-spending boom also sent Asian foundry suppliers’ earnings soaring: SK Hynix reported a bottom line of USD 27 bn last week, with revenue up nearly 200% y-o-y, according to CNBC and KED Global. The company has sold out its DRAM, NAND, and high-bandwidth memory production through the end of the year, much of it to Nvidia, NotebookCheck reports.

The dominance of those names has left some investors uneasy that the EM index — long pitched as a way to diversify away from rich-world equity risk — has effectively become a derivative of the AI mania that’s taken over Wall Street.

“The AI story has run so wild in [South] Korea and Taiwan,” Song Zhe, senior investment specialist at BNP Paribas Asset Management, tells the salmon-colored paper. “We still love this market, but people should think about diversification in this AI rally.”

Both Taiwan and South Korea were among the hardest hit when Asian markets tumbled in the opening days of the Iran war, as investors liquidated their best-performing trades of early 2026.

But equity markets proved resilient once the initial panic faded. The USD, which spiked at the outset of the conflict, has surrendered most of those gains — a tailwind for EM exporters whose earnings translate from local currencies.

“The USD, which largely moves in opposite directions to emerging markets… is likely to have peaked,” Varun Laijawalla, EM equity portfolio manager at Ninety One, tells the FT. EM stocks are also benefiting from a “structurally better earnings picture” and cheaper valuations than the US, he argues — a view echoed by sell-side analysts who have raised 2026 EM earnings forecasts by about 30% this year, three times the upgrade applied to the S&P 500, according to GuruFocus.

Tech has led the charge, with the EM tech sub-index up around 50% YTD, while energy, industrials, and utilities also delivered double-digit returns. “Seven out of 11 sectors were in positive territory,” Laijawalla said. “The rally is more than just tech.”

MARKETS THIS MORNING-

Asia-Pacific markets are mixed in early trading this morning as investors process a pretty busy 24 hours — Brent soared past USD 120 / bbl amid the ongoing naval blockade, the US Federal Reserve left rates steady, and AI optimism continues to shield tech heavyweights from ongoing volatility.

THE CLOSING BELL-

The DFM rose 0.1% yesterday on turnover of AED 828.5 mn. The index is down 3.1% YTD.

In the green: Dubai Refreshment Company (+12.7%), National International Holding Company (+9.1%), and Amlak Finance (+4.4%).

In the red: Al Salam Sudan (-2.5%), Emaar Properties (-1.4%), and Watania International Holding (-1.3%).

Over on the ADX, the index rose 0.7% on turnover of AED 2.1 bn. Meanwhile, Nasdaq Dubai was up 0.4%.