Sinking Profits Bring Reality Check to AI-Driven Rally in Emerging Market Stocks

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Bloomberg News

Emerging Markets,China,Nenad Dinic

(Bloomberg) -- Just as enthusiasm over artificial intelligence and China’s stimulus fades, a familiar weakness has come back to haunt equity investors in...

-- Just as enthusiasm over artificial intelligence and China’s stimulus fades, a familiar weakness has come back to haunt equity investors in emerging markets: sinking corporate profits.Global Banks Start Targeting a New Breed of Real Estate Risk

The MSCI EM index advanced 15% from Jan. 17 through May 20, before weaker sentiment toward AI stocks triggered a 4.8% fall through May 31. Technology stocks from China and the AI hubs Taiwan and South Korea are leading the declines. Meanwhile, a price war in AI is putting corporate performance under pressure. Alibaba Group Holding Ltd. dropped prices of some of its services, spurring its rivals to do the same. Investors are balking at the extent of discounts that are being offered — as much as 97% for some services — and reconsidering further investments in that area. A gauge of Chinese tech stocks has slumped 11% in just nine trading days.

In India, the official count of the seven-phase election will take place on Tuesday. Prime Minister Narendra Modi is widely expected to remain in power though the opposition hopes for its best showing in 10 years. Poland’s central bank is expected to keep the policy rate unchanged at its June 5 meeting, extending the pause since the last cut in October 2023. Headline inflation broadly remains within target.

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