🚨 Emerging Markets Enter Correction Phase

Today Korean Economic News | 2025.01.11

📌 "Emerging Markets Enter Correction Phase"... Semiconductor Stocks Notably Weak

💬 Emerging stock markets have entered a correction phase, with semiconductor stocks showing notable weakness. Bloomberg reports that the MSCI Emerging Markets Index fell 0.4%, entering a correction phase with a 10% decline compared to October last year. This is analyzed to be influenced by US policy uncertainty and China's economic stimulus measures, among other factors.

1️⃣ Easy to Understand

News has emerged that emerging markets are showing a downward trend. 'Emerging markets' refer to countries undergoing rapid economic growth, including South Korea, China, India, and Brazil. The stock markets of these countries have been generally showing weakness in recent months.

To use a simple analogy, emerging markets are like rapidly growing teenagers. They have great growth potential but react more sensitively to external environmental changes. It's as if that teenager is currently experiencing growing pains. In particular, the stock prices of companies related to semiconductors, which act as the 'brain' of electronic products, are falling more significantly.

There are various reasons for this phenomenon, but two main ones can be cited. One is the uncertainty in US policy direction, and the other is that China, the world's second-largest economy, is not achieving economic recovery as expected. It can be seen as a situation where the two pillars of the world economy are shaking, and emerging countries are feeling the impact more severely.

2️⃣ Economic Terms

📕 Emerging Markets

Emerging markets refer to financial markets of countries that are in the process of advancing to developed nations in their economic development stage.

• They generally include countries in the MSCI Emerging Markets Index, with China, India, Brazil, South Korea, and Taiwan being representative examples.
• They have higher growth potential than developed markets but are characterized by greater volatility and higher political and economic risks.

📕 Correction Phase

A correction phase refers to a market situation where stock prices fall by more than 10% in a short period.

• This is seen as a process of cooling market overheating and is considered part of a healthy market cycle.
• If the decline exceeds 20%, it is defined as a 'Bear Market', and the correction phase can be viewed as a preliminary stage to a bear market.

📕 MSCI Index

The MSCI (Morgan Stanley Capital International) Index is a stock index widely used as a global investment benchmark.

• The MSCI Emerging Markets Index is a representative indicator measuring the performance of emerging markets worldwide.
• It is composed considering each country's market capitalization, liquidity, and investability.

📕 Semiconductor Stocks

Semiconductor stocks refer to shares of companies involved in semiconductor design, manufacturing, equipment production, etc.

• Samsung Electronics, SK Hynix, TSMC, Intel, and Nvidia are representative semiconductor-related companies.
• They react sensitively to technological innovation and economic cycles and are positioned as a core industry in the global supply chain.

3️⃣ Principles and Economic Outlook

💡 Causes of Emerging Markets Correction

• Complex factors are at play in emerging markets entering a correction phase. The most significant influence has been US policy uncertainty. The possibility of protectionist policies in Trump's second administration and uncertainty about interest rate policy have strengthened investors' risk-averse tendencies. Additionally, the delayed recovery of the Chinese economy is an important factor. Despite the Chinese government's economic stimulus measures, the real estate market depression and persistent weak consumption mean that the growth engine of the world's second-largest economy is not functioning properly. In this situation, the continued strength of the dollar is leading to weak emerging market currencies and capital outflow pressure. In particular, countries with high export dependence and deep integration into global supply chains are experiencing a greater impact within emerging markets.

💡 Background of Semiconductor Industry Weakness

• The notable weakness in semiconductor-related stocks reflects industry characteristics and changes in the global economic environment. First, the semiconductor industry has the nature of cyclical stocks that react sensitively to global economic cycles. As concerns about global economic growth increase, prospects of decreased demand are being priced into stocks in advance. Second, after the rapid rise in semiconductor stocks due to the AI boom, selling pressure for profit-taking is emerging amid increased valuation burden. Third, US technology regulations and moves to reorganize the semiconductor supply chain are adding uncertainty. In particular, the possibility of strengthening semiconductor export restrictions to China is a burden for Asian semiconductor companies. Fourth, concerns about oversupply of some semiconductor items and prospects of price declines are also acting as negative factors.

💡 Regional Differentiation and Future Outlook

• Differentiation by country and region is emerging within emerging markets. Latin American countries are showing relatively good performance due to rising commodity prices and the effects of monetary policy normalization, while Asian emerging markets are experiencing a larger correction due to the impact of China's economic slowdown and weakness in the semiconductor industry. The future direction of emerging markets is expected to be determined by three key variables. First, US interest rate policy and the continuation of dollar strength. Second, the effects of China's economic stimulus measures and the pace of economic recovery. Third, changes in the global trade environment and supply chain reorganization. In the case of the semiconductor industry, technology innovation cycles and supply-demand conditions will act as additional variables. Experts predict that while volatility in emerging markets will continue in the short term, there is also the possibility of gradual recovery as valuation appeal increases.

4️⃣ In Conclusion

The entry of emerging markets into a correction phase and the weakness of semiconductor stocks can be seen as an inevitable result of changes in the global economic environment and industry cycles. Emerging markets are facing challenging situations due to complex factors, including US policy uncertainty, delayed recovery of the Chinese economy, and dollar strength.

Investors need to recognize such market corrections as short-term volatility and seek opportunities from a long-term investment perspective. Key industries like semiconductors, despite short-term sluggishness, possess long-term growth potential as the foundation for future technologies such as digital transformation, AI, autonomous driving, and the Internet of Things.

Policymakers need to focus on maintaining macroeconomic stability and strengthening competitiveness through structural reforms in response to volatility in emerging markets. Especially for export-oriented countries like South Korea, a strategic approach to prepare for global supply chain reorganization is important.

Ultimately, the current correction in emerging markets is a natural part of the investment cycle, through which the market can lay the foundation for a healthier rise. In the case of the semiconductor industry, as long as technological innovation and demand expansion continue, the long-term growth story remains valid. However, investors should anticipate short-term volatility and respond through diversified investment and risk management.

The key variables that will determine future market trends will be the direction of the US Federal Reserve's interest rate policy, the effects of China's economic stimulus measures, and changes in the global trade environment. While monitoring these macroeconomic factors, it is a time that requires a wise investment approach through industry-specific and country-specific differentiation strategies. The correction in emerging markets is both a crisis and an opportunity, and how one views and responds to it will determine future investment performance.