(Bloomberg) — Emerging-market equities notched their worst day in roughly three weeks as Asian technology heavyweights retreated after a disappointing outlook from Broadcom Inc. raised concerns about the scale of the artificial-intelligence rally.
MSCI Inc.’s benchmark stocks gauge, which is heavily weighted toward Asian markets, fell 1.6% on Thursday. The information-technology subindex slumped as much as 3%.
Broadcom’s quarterly forecast for artificial-intelligence semiconductor revenue fell short of expectations, rattling investor confidence in the durability of the AI trade, which has propelled the emerging-market stock benchmark to successive records this year.
“We anticipate that market sentiment will remain slightly subdued following Broadcom Inc.’s disappointing report, raising concerns that the significant rally in technology stocks may have gone too far,” Banco Ve Por Mas analysts including Ariel Méndez Velázquez and Elisa Alejandra Vargas Añorve wrote in a note.
Some, like Greg Lesko, a portfolio manager at Deltec Asset Management LLC who is focused on emerging-market stocks, sees it as a near-term blip rather than a turning point for the AI trade, though he said “investors were a little too ebullient” before Broadcom’s results.
Traders are also keeping a close watch on the Middle East.
US President Donald Trump said ceasefire talks are in the “final” stages, while earlier, Iran’s foreign minister said the negotiations had stalled. On Wednesday, Iran fired missiles and drones at Kuwait and Bahrain, killing one person and injuring dozens at Kuwait’s main airport, after the US struck an oil tanker headed to the Islamic Republic.
Most emerging-market currencies ticked higher, though a barometer tracking them fell for a third session in a row, ending down 0.3%. Hungary’s forint and Mexico’s peso outperformed.
Looking ahead, if an Iran deal is reached, news flow will “drop significantly” in the second half of June, and a World Cup set to begin on June 11 will further drive down market volatility, according to Luis Estrada, a strategist at RBC Capital Markets.
“This combination should push implied volatility lower and gradually shift dealers and investors back into ‘carry mode,’ which naturally favors LATAMFX,” Estrada wrote on Thursday.
Meanwhile, Romanian dollar bonds gained after Bloomberg reported that President Nicusor Dan is poised to nominate his adviser, Eugen Tomac, as prime minister in a bid to end a political crisis and tackle one of the European Union’s widest budget deficits. The nation slid into political crisis last month when the Social Democrats, the largest party in parliament, withdrew from the ruling pro-European coalition and joined forces with the far-right opposition to topple the premier.
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