Emerging Markets Equities

TSMC reported third-quarter revenue of US$46.72 billion, up 41.2% from a year earlier and above its July guidance of $44.6-45.8 billion; net income rose 68.7% and gross margin was 66.4%. It guided fourth-quarter revenue to $52.3-54.3 billion and raised its 2026 U.S.-dollar sales growth outlook to 44% from slightly above 40%. Taiwan's index nevertheless fell 3.41% to 46,969.87 on results day.

Why it matters here: TSMC is the dominant constituent of the Taiwan fund and a major weight in emerging markets ex-China, so upgrades to its earnings raise forward earnings for the benchmark directly at a time when prices have fallen.

Counterpoint: The market sold Taiwan on results day because the worry is whether AI customers can keep funding their spending into 2027, and a strong current quarter does not settle that question.

The IMF's October World Economic Outlook projects 2026 growth of 10.7% for Taiwan, 7.0% for India and 3.3% for Korea, while raising its global forecast to 3.1% from 3.0%.

Why it matters here: Strong official forecasts for two of the largest markets in emerging markets ex-China support earnings expectations for the Taiwan and India funds.

Counterpoint: The same report warns that an AI pullback could leave global GDP 1.1% lower by 2028, and Taiwan's AI-driven growth is exactly what the market is now questioning.

Korea's finance ministry, the Bank of Korea and the two financial regulators held a market review meeting on Friday and pledged stern action against unfair trading and stronger real-time monitoring. The Kospi rose 2.05% to 5,668.05, ending a seven-session losing streak, the Kosdaq rose 4.46%, and foreign investors net bought KRW 341 billion as the won strengthened to 1,331.4 per dollar.

Why it matters here: Official attention and the return of foreign buying after a capitulation week tend to put a short-term floor under the South Korea fund.

Counterpoint: The authorities announced monitoring and enforcement, not support buying, and the rebound recovered only a small part of a 14.5% weekly loss while the AI de-rating behind the crash continued in New York.

Forecasters cited by CNBC expect the rupee to weaken to about 97 per dollar by the end of 2026 and 98 by mid-2027, citing the Iran war and oil prices. The currency recovered from 96.79 to about 95 per dollar after the Reserve Bank of India curbed speculation on 10 October, and foreign investors have sold $32.5 billion of Indian equities this year.

Why it matters here: A depreciating rupee cuts dollar returns on the India fund for foreign holders and encourages further outflows, which pressures Indian equity valuations.

Counterpoint: The Reserve Bank of India has shown it will intervene, the IMF still expects India to grow 7.0%, and the view rests on a single report of third-party forecasts.

Over the 10-11 October weekend China's CXMT claimed progress on a new memory-cell architecture and said it plans a server product by the end of 2026. On 13 October SK Hynix fell 10% and Samsung Electronics 7.4%; HSBC estimates CXMT's share of the DRAM market at about 10%, up from about 4%. On 14 October Anhui's Communist Party chief visited CXMT and pledged to expand the province's chip industry.

Why it matters here: Samsung and SK Hynix are heavy weights in the Korea fund and important in the broader ex-China benchmark, and a state-backed entrant gaining DRAM share points to lower future memory margins for these incumbents.

Counterpoint: CXMT's technical claims are its own and unverified, and analysts quoted by The Korea Times call the memory sell-off excessive ahead of SK Hynix's and Samsung's results on 28 and 29 October.

Attacks on shipping cut crossings of the Strait of Hormuz to 131 in the week to 14 October from 176, and Brent settled at $109.86 on Friday, up 3.72%, after touching $110.

Why it matters here: India, Taiwan and Korea, the largest weights in emerging markets ex-China, depend on imported oil, so higher crude weighs on their current accounts, currencies and inflation; oil exporters such as Brazil are the exception.

Counterpoint: The Reserve Bank of India has already pulled the rupee back from 96.79 to about 95 per dollar, and Brazil, an oil exporter in the benchmark, gains from the same move.

The week's AI sell-off hit Asian chipmakers hardest: on Thursday SK Hynix and Samsung each fell more than 8%, and Taiwan's index fell 3.41% to 46,969.87. Taiwan rose 0.3% to 47,111.26 on Friday, but the U.S. sell-off resumed, leaving the VanEck Semiconductor ETF down 10% for the week.

Why it matters here: Emerging markets ex-China has become largely a semiconductor allocation through Taiwan and Korea, so a global de-rating of AI hardware passes almost directly into the benchmark.

Counterpoint: TSMC raised its 2026 growth guidance to 44% the same week, so fundamentals are improving while prices fall; if the selling is driven by positioning, it can reverse once foreign outflows slow.

On 15 October MSCI proposed moving Indonesia from Emerging Market to Standalone status unless there is clear evidence of governance improvement, with feedback due by 30 April 2027 and a decision by the end of June 2027. The Jakarta Composite fell 8% at Friday's open, triggering a trading halt, and closed down about 11.6%, which Business Today called the worst drop since January 1998. The sovereign wealth fund Danantara plans $5 billion of investment in local companies.

Why it matters here: Removal from emerging-market indexes would force passive funds to sell Indonesian shares, and the governance warning raises the risk premium on other benchmark markets with weak governance.

Counterpoint: Indonesia is a small weight in emerging markets ex-China, the decision is not due until mid-2027, and Danantara's support plan or governance reforms could still avert the move.

South Korea's Kospi fell 7.57% to 5,554.22 on 15 October, triggering a sell-side sidecar and a level-1 circuit breaker, as foreign investors net sold KRW 3.6 trillion; Samsung Electronics fell 9.48% and SK Hynix 11.06%. The index ended the week down 14.5%, its worst week since October 2008, and stands 40.4% below its 19 June peak.

Why it matters here: Foreign investors are cutting crowded semiconductor positions in Korea, and the forced selling weighs on the South Korea fund and on any benchmark with a large Korea weight until the outflows stop.

Counterpoint: After a fall of that size the market is deeply oversold, the authorities have stepped in, and Friday's rebound with foreigners turning net buyers suggests capitulation may already be under way.