Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How AI Is Driving a Wedge Between China and Korea
Transcript
- Lucas: So here's a snapshot of emerging markets this week. China ETFs like FXI are up more than five and a half percent. The KWEB internet fund is up over six. Meanwhile, South Korea's EWY is down two and a half percent, and Taiwan's EWT is down over four. Luna: That's a stark split. What's driving it? Lucas: I think it's the AI trade bifurcating. South Korea and Taiwan are the hardware suppliers — memory chips, semiconductors, foundry services. And that part of the AI chain is seeing a demand slowdown. Just today, there's a headline that AI investor Leopold Aschenbrenner is being forced to unwind all his public stock positions after steep losses. Luna: That's the guy who was famously bullish on AI infrastructure. So if even the big believers are selling, it suggests the hardware buildout might be overdone. Lucas: Exactly. And you combine that with OpenAI cutting prices on its latest GPT models. They're reacting to customers getting cost-sensitive. So the hyperscalers are tightening their belts, and that flows directly to chip orders. Samsung and SK Hynix in Korea, TSMC in Taiwan — they're the ones who feel it first. Luna: Meanwhile, China is rallying. How does that fit? China isn't a big AI hardware exporter. Lucas: Right. China's story is more about domestic AI adoption and government stimulus. The Chinese tech giants — Alibaba, JD, PDD — they're using AI to boost e-commerce, cloud, advertising. And the market is rewarding that. Plus, Beijing has been rolling out fiscal support and deregulation for tech. So you've got a positive policy backdrop. Luna: So it's almost like two different emerging market narratives playing out at the same time: the hardware exporters getting punished, and the domestic-demand plays getting a lift. Lucas: Exactly. And it's not just China. Look at India — the INDA ETF is up three and a half percent. India's story is domestic too: strong consumption, services, and a growing tech stack. Brazil's EWZ is up one and a half percent, helped by commodity exports and a more stable currency. Luna: But Korea and Taiwan are export powerhouses. If the AI demand slowdown is real, that could spill over into other export-driven economies in the region. Lucas: That's the worry. And the bigger macro picture isn't helping. The US trade deficit widened to over $77 billion in May, meaning the US is importing less relative to exports. That's a headwind for emerging market exporters in general. And the strong dollar, even though it's eased a bit — the trade-weighted index is at 120.7 — it's still elevated. Luna: For a country like Mexico, which is now America's top trade partner, the strong dollar isn't as bad because they're integrated into US supply chains. But for Korea and Taiwan, where exports are more tied to global capital spending, it's a different story. Lucas: Right. Mexico's EWW is up two percent this week. They're benefiting from nearshoring and steady demand for autos and machinery. So the divergence we're seeing isn't just about AI — it's about the structure of each economy. Exporters of investment goods are getting squeezed, while domestic-demand and commodity stories are holding up. Luna: Speaking of holding up — you know, this kind of analysis is exactly why I find this show useful. If walking through the economy with us has made something click, it's worth mentioning that listener support is what keeps it ad-free. Lucas: Yeah, honestly, if today's episode was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. No pressure, just helps us keep doing this. Luna: Totally. And now back to that divergence — what does this mean for an investor looking at emerging markets right now? Lucas: I think the key is to focus on countries with strong domestic demand and policy support. China, India, even Indonesia — they have internal engines that can buffer global headwinds. For export-driven economies like Korea and Taiwan, you need to see a recovery in global tech spending before jumping back in. Luna: And that recovery might take a while. The Aschenbrenner unwind and OpenAI price cuts suggest we're in a period of belt-tightening, not expansion. Lucas: Exactly. But longer term, AI infrastructure investment will likely resume. The question is when. In the meantime, the market is telling us that not all emerging markets are created equal. This divergence could persist for the next few quarters. Luna: So what's the one thing a listener should take away from today? Lucas: Don't paint emerging markets with a broad brush. The AI trade is creating winners and losers. If you're investing, you need to look at whether a country is a hardware supplier or an AI adopter. And right now, the adopters are winning. Luna: That's a great framework. Thanks, Lucas. Lucas: Thanks, Luna. We'll keep watching this space.