29/06/26: US rate hikes, tech trades & emerging markets
Monday Espresso Podcast - 29th June 2026
[00:00:00] Andrew Shaw: Today is Monday the 29th of June. I'm Andrew Shaw, Investment Analyst here at Marlborough, and joining me today is Nick Warmisham, also one of our Investment Analysts. Nick, good morning.
[00:00:10] Nick Warmisham: Good morning, Andrew.
[00:00:12] Andrew Shaw: Before we get into our main topics today, let's recap to what happened in markets last week. Nick, a fairly eventful one.
[00:00:18] Nick Warmisham: It was indeed Andrew, and technology was very much the story of the week.
[00:00:22] Tuesday was the rough day, really a note from Bank of America flagging the prospect of multiple US interest rate hikes this year, spooked investors sitting on very large gains in AI and semiconductor stocks. The selloff started in Asia and spread westward.
[00:00:39] South Korea's KOSPI fell close to 10% on the day alone. Samsung and SK Hynix both dropped over 12%, triggering an automatic trading halt on the exchange.
[00:00:50] European chips followed, and by the close in New York, the NASDAQ was down around 2.2% and the S&P 500 had lost 1.4%. The Dow held up far better, obviously a less tech heavy index and fell just 0.1%.
[00:01:07] Andrew Shaw: Yeah, and it is worth putting it in context for our listeners that the S&P 500 has posted gains in 11 of the previous 12 weeks. So some profit taken after a run like that is not particularly surprising. How did the rest of the week play out Nick?
[00:01:21] Nick Warmisham: Markets steadied from Wednesday onwards, the big catalyst was Micron technology, a major US memory chip maker reporting blowout earnings after the close on Wednesday, revenue quadrupled, year on year, well ahead of already high expectations. And their outlook for the current quarter was very strong.
[00:01:41] Micron surged over 15% on Thursday, dragging other chip names higher with it. On the macro side, US PCE inflation data, the Federal Reserve's preferred gauge came in broadly in line with expectations, which also helped calm nerves.
[00:01:57] The Dow actually hits a new all time intraday high during the week supported by healthcare, financials and industrials.
[00:02:03] So overall, a volatile week, but not a change in the broader direction of travel. The tech trade is clearly sensitive to any hint of higher rates, but the underlying earnings picture remains very strong,
[00:02:15] Andrew Shaw: Volatile, but ultimately contained. The key message for our listeners is that when markets have risen as sharply as they have, you will get these bouts of turbulence, and last week was a great illustration of that.
[00:02:28] Now, our main theme today, we're gonna focus on Japan, Emerging Markets and Asia. Nick Japan first, what's been driving the strong performance?
[00:02:38] Nick Warmisham: Yeah. Well, we've seen that the Nikkei has hit all time highs this year and being one of the best performing major markets globally. And there's three things really driving this performance.
[00:02:48] First, prime minister Takaichi won a landslide election earlier this year. Markets have welcomed the political stability and her pro growth fiscally expansive agenda.
[00:02:58] Second, Japan is right at the heart of the global AI supply chain. Semiconductor equipment and electronic component companies are direct beneficiaries of the enormous AI build out happening in the US. Japan is essentially a leverage play on global AI demand.
[00:03:15] And third corporate governance reform. The Tokyo Stock Exchange has spent years pushing companies to use cash more efficiently and return more to shareholders, and that is increasingly showing up in the numbers.
[00:03:26] Andrew Shaw: Yeah so a political tailwind, AI exposure, and better run companies.
[00:03:30] It's a quite a compelling combination there. Any flags to risk in Japan?
[00:03:35] Nick Warmisham: Yeah, well, I think it's worthwhile bringing up that valuations have become relatively stretched after such a strong run. We saw that volatility play out this week, a sharp surge early on, then a pullback.
[00:03:47] Japan is also a large energy importer, so elevated oil prices feed through to inflation and the Bank of Japan raising rates is a new dynamic, the market's still adjusting to.
[00:03:58] Andrew Shaw: So we've got short term noise, but the structural stories still looks intact. Let's move to Emerging Markets starting in Asia.
[00:04:05] Nick Warmisham: Yeah, well, looking at Asia again, the story is AI. Taiwan and South Korea have been two of the standout global markets this year. TSMC in Taiwan makes the vast majority of the world's advanced semiconductors, including every Nvidia AI chip.
[00:04:22] In South Korea, Samsung and SK Hynix dominate the market for high bandwidth and memory chips used in AI servers.
[00:04:28] One of the world's biggest tech companies are spending heavily on AI infrastructure. A huge proportion of that flows directly to companies in these two countries.
[00:04:37] Andrew Shaw: Yeah, it really is an important point, isn't it? The AI theme is not just the US story. Asian markets are capturing quite a significant chunk of that value.
[00:04:46] What about China, Nick?
[00:04:47] Nick Warmisham: Yeah, I'd say China has been a headwind really this year, particularly for investors in global emerging markets funds. The MSCI China Index is down meaningfully this year and has struggled over the past 12 months.
[00:05:00] Consumer confidence is weak, the property sector has been a persistent drag and household spending has not recovered in the way policymakers had hoped.
[00:05:09] There has been genuine progress in AI and technology. DeepSeek was a notable moment, but that has not been enough to offset the broader macro concerns. Geopolitical uncertainty around US. China relations remains an overhang for foreign investors too.
[00:05:24] Andrew Shaw: And China still carries a significant weight in most emerging market funds.
[00:05:28] So even where the rest of Asia has done well, China has been a meaningful drag on overall returns. India's also struggling this year, isn't it?
[00:05:38] Nick Warmisham: Yes it has. And that's been a real reversal from recent years. The issue is a lack of exposure to the AI chip supply chain.
[00:05:46] Foreign investors have been sellers, the currency has weakened and higher energy costs are weighing on domestic consumption. The long-term growth story remains strong, but it has been the wrong moment in the cycle for India.
[00:05:59] Andrew Shaw: Yeah, it's a right story wrong moment. So within Asia AI winners in Taiwan and South Korea on one side and China and India facing other distinct headwinds on the other, it's a real clear summary Nick, and thank you very much for that.
[00:06:13] So for our listeners, a mixed with interesting period for emerging markets, AI driven strong gains in parts of Asia, but China and India remind us that not everything moves together all the time. As ever, higher potential returns do come with higher risk.
[00:06:29] Nick, anything to watch in the week ahead?
[00:06:31] Nick Warmisham: Yeah, I'd say it's a fairly quiet week on data, with eyes mainly being focused on the Middle East.
[00:06:39] That remains the key variable for oil prices and a lot of what we've discussed today, really. So any further progress on the Iran situation would be well received.
[00:06:49] Andrew Shaw: Great. Nick, thank you as always. To our listeners, thank you for tuning in. We hope you found that useful, and here if you have any questions, and wishing you all a great week ahead.
