Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / Why Emerging Market Stocks Are Plunging in Early June 2026
Transcript
- Lucas: South Korea's EWY ETF is down nineteen percent in the last five days. That's not a typo. Luna: Nineteen percent in five days? That's worse than most single stocks. What happened? Lucas: The Nasdaq had its worst day since April 2025 on Friday — down four percent. Traders fled chip stocks in a panic, and South Korea is ground zero for memory chips. Samsung, SK Hynix — they're the biggest exporters of the components that power AI data centers. When the AI trade wobbles, they get hit first. Luna: So this is an AI hangover? I saw the headline about Google paying SpaceX something like nine hundred and twenty million dollars a month for compute capacity at xAI data centers. That number is staggering. Lucas: It is. And that's exactly the kind of capex that's spooking markets. Google's stock also sank on reports they might raise tens of billions to fund their AI push. The market is starting to ask: how much is this all going to cost, and what's the return? When you see a company like Google needing to raise debt for compute, it raises questions about the whole AI infrastructure buildout. Luna: And South Korea is the canary in the coal mine because its entire export machine is tied to that buildout. Their economy lives and dies by semiconductor demand. Lucas: Exactly. The EWY ETF dropped from around two seventeen to one seventy-five in a week. That's not just Korea — that's a global repricing of risk. Look at other EM ETFs: the broad EEM is down seven point eight percent in five days. Brazil's EWZ down four point seven. Thailand's EWT down seven point eight. Only China's FXI is relatively calm, down one point seven percent. Luna: Why is China holding up better? Is it because they're less exposed to the AI trade? Lucas: Partly. China's tech giants like Alibaba and Baidu are down, but not as brutally. Alibaba's only off three and a half percent. The bigger factor might be that China's market has already been beaten down for years — valuations are low, and there's less froth to blow off. Plus, the Chinese yuan is actually strengthening slightly against the dollar, which helps. Luna: The dollar has been fading a bit. The trade-weighted index is down from one nineteen to just under one nineteen over the past week. But it's still high historically — one eighteen point nine. Lucas: Right. And a strong dollar is what usually crushes EM assets because it makes dollar-denominated debt more expensive and sucks capital back to the US. But this sell-off isn't really about the dollar — it's about a sector-specific shock that's spreading through the EM complex. The trigger was the Nasdaq chip rout. Luna: So the question is: is this a buying opportunity or the beginning of a deeper correction? Nineteen percent in five days sounds like panic, but panic can be a signal. Lucas: I think you have to separate the signal from the noise. The AI capex cycle is real — companies are spending billions because they believe AI will transform their businesses. But the market is now pricing in the risk that those returns take longer than expected. South Korea's semiconductor exports are still growing year-over-year, but the rate of growth is slowing. If you believe AI demand is secular, this looks like a dip. If you think we're in a capex bubble, you get out. Luna: And what about the broader EM picture? The sell-off is pretty broad-based beyond Korea. Lucas: It is. But the divergences are telling. India's INDA is only down one point four percent. That market is more domestic-demand driven — it's less tied to global tech cycles. Brazil is down more, partly because commodities have softened too. But the real outlier is Korea, and that's because Korea is essentially a levered bet on one sector: memory chips. Luna: So for listeners trying to make sense of their EM exposure, the key takeaway is: understand what your ETF actually owns. EWY is not the same as EEM, and EEM is not the same as INDA. The divergence within emerging markets is enormous right now. Lucas: That's the central insight of 2026, honestly. The old idea that 'emerging markets' is one asset class is dead. You have to pick your country exposure based on the specific economic driver — tech exports, commodities, domestic consumption. A blanket EM ETF won't give you the diversification you think it does. Luna: And speaking of understanding what you're invested in — if you find value in us walking through these complexities every day, we do this show ad-free thanks to listeners who support it. You can find us at buy me a coffee dot com slash fexingo. No pressure, just a way to keep the conversation going without ads. Lucas: Absolutely. And that support lets us dig into exactly these kinds of questions — whether it's a Korea-specific selloff or a broader EM shift. So thank you to everyone who helps make that possible. Luna: Alright, back to the sell-off. Lucas, you mentioned this might be a dip. What are you watching for in the next few days to decide? Lucas: Two things. First, whether the Nasdaq stabilizes. If US tech keeps falling, Korea will follow. Second, I'm watching South Korea's export data for May — it comes out next week. If semiconductor exports actually decline month-over-month, that's a red flag. If they just slow growth, it's probably noise. Also, the KOSPI has support around the 2025 lows. If EWY breaks below one sixty, that's a different story. Luna: And what about the broader EM ETFs? Is there any value in buying the dip on EEM or VWO? Lucas: I'd be cautious. The dollar is still strong, and if the Fed stays hawkish, EM could face further headwinds. But if you're a long-term investor, some of these valuations are starting to look interesting. EEM at sixty-four dollars is near its 2023 lows. The question is whether earnings can grow into that valuation. For now, I'd wait for the dust to settle before catching any falling knives. Luna: Patience over panic. That's probably the best advice for any sell-off. Lucas: Exactly. Markets always overreact in the short term. The trick is knowing whether this is a five percent correction or a thirty percent bear market. And that depends on whether the AI investment cycle is real or a bubble. I tend to think it's real, but the road will be bumpy. Luna: Alright, we'll keep watching the data. Thanks Lucas. Lucas: Thanks Luna. And thanks to our listeners. We'll be back tomorrow with more.