Two familiar themes have driven equities markets once again this week: jitters about whether AI stocks can keep justifying their valuations and anxiety about the oil price surge amid renewed conflict between Iran and the US. Major indices drifted slightly downwards as investors weighed up their hopes for second quarter earnings against their fears of further escalation in the Middle East.
AI valuations contributed to a volatile week for chip stocks, affecting indices in the US and Asia alike. South Korea’s KOSPI shed nearly 9% of its value this week, pulled down by steep losses in SK Hynix and Samsung Electronics. These two semiconductor companies, between them, account for roughly half of the KOSPI’s total market capitalisation and have soared this year due to demand for the high-bandwidth memory needed for AI infrastructure buildouts.
Taiwan Semiconductor Manufacturing Company (TSMC) – the world’s largest semiconductor foundry – reported record second-quarter revenue and lifted its capex spending outlook for the year. Yet the stock (specifically, the American Depositary Receipt (ADR) slid by around 5.6% this week as investors fretted over its warning about higher prices. This pulled Taiwan’s TAIEX down by nearly 6% this week, with TSMC accounting for more than 40% of the index’s market capitalisation.
Despite reporting strong earnings results, shares in Dutch semiconductor equipment manufacturer ASML, a key supplier of chip-making machines to the global technology industry, declined over the course of the week. The PHLX Semiconductor Sector, which tracks the 30 largest US-traded companies involved in the design, distribution, manufacture, and sale of semiconductors, was down more than 8% at the time of writing this week.
These moves suggest that some investors are taking profits after the hot run that chipmakers have enjoyed this year. Even after this week’s consolidation, the KOSPI is still up more than 60% for the year to date, while TAIEX is up by more than 45%. The PHLX Semiconductor Sector, meanwhile, is up by close to 68%. Seen in that context, this week’s moves look like a healthy adjustment rather than a cause for alarm.
The other factor that moved markets this week was the resumption of hostilities between the US and Iran. The fresh outbreak of fighting pushed Brent crude oil prices up by around $10 this week, reviving concerns about inflation. Higher energy costs feed into transport, manufacturing and consumer prices. This raises the spectre of the Fed holding rates higher for longer, just as investors had begun pricing in looser policy.
On the upside, the second quarter earnings season has kicked off with positive momentum. The big US banking groups have broadly reported earnings and revenue growth rates that have beaten expectations. These early earnings reports suggest that healthy consumer activity, resilient loan demand, and robust capital markets continue to support corporate profitability.
The real test starts next week when the first of the “Magnificent Seven” report second quarter earnings. Investors will be looking for evidence that AI spending is translating into returns. With the four biggest US AI operators expected to spend up to $725 billion on AI infrastructure this year, expectations will be high. Between AI valuations, oil-driven inflation concerns and earnings, investors’ nerves will stay on edge for the foreseeable future – just as they have been for the year-to-date.
“When you’ve a lot of optimism in the market, you need everything to go right. Any piece of negative news can throw the market off. There’s a lot of confidence built in right now. It’s not a bad thing in itself, but it does create a high hurdle for market prices to keep going higher.”
– Tony Welch, Chief Investment Officer at SignatureFD
Global News
- The US-Iran conflict escalated this week as both sides stepped up military action, further disrupting shipping through the Strait of Hormuz despite last month’s interim peace agreement. Iran said it would keep the waterway closed unless Washington accepted its demands, while the US expanded its strikes to target Iranian oil exports. Crude flows through Hormuz fell to about 5.5 million barrels a day from 9.4 million barrels a day the previous week, lifting oil prices by approximately 13% this week and reigniting concerns that higher energy costs could fuel inflation and keep interest rates elevated.
- US consumer prices fell 0.4% in June, the biggest monthly decline since April 2020, as the largest drop in petrol prices since 2022 eased inflationary pressures, Bureau of Labor Statistics data released on Tuesday showed. Producer prices also unexpectedly fell 0.3% in June, reinforcing evidence that inflationary pressures are easing and further reducing expectations of a Fed interest rate increase in July. However, annual inflation remained elevated at 3.5%, with economists warning that renewed US-Iran hostilities could push energy prices higher, meaning another rate increase later this year cannot be ruled out.
- Fed Chairman Kevin Warsh said on Wednesday that the AI investment boom is unlikely to fuel persistent inflation, arguing that, while it may temporarily raise the cost of energy, labour and computer chips, it should also encourage a supply response and boost productivity over time. Unlike geopolitical conflicts, which constrain supply, AI-driven price increases are unlikely to warrant an immediate policy response, suggesting the Fed may be more patient while remaining committed to price stability.
- China has overtaken the US in global favourability for the first time in nearly 20 years, according to a Pew Research Center survey of more than 42,000 people across 36 countries released on Wednesday. Nearly half of respondents held a positive view of China, compared with 36% for the US, reversing the position from three years ago, when the US led 58% to China’s 32%. While both President Xi Jinping and President Donald Trump received broadly negative ratings, confidence in Xi exceeded confidence in Trump, highlighting a shift in global perceptions that could strengthen China’s diplomatic influence as the two powers compete for geopolitical and economic leadership.
- China’s economy slowed more than expected in the second quarter, with GDP growing 4.3% year-on-year, the weakest pace in more than three years and below the government’s annual target range, official data released on Wednesday showed. Although higher energy prices ended the country’s three-year deflationary streak, weak domestic demand continued to weigh on the economy, increasing expectations of further stimulus as major banks cut their 2026 growth forecasts.
- China’s rapid adoption of electric vehicles is reducing its exposure to oil price shocks, highlighting one of the first major economic dividends of the country’s energy transition. About half of China’s 1.3 million taxis are now electric, while non-fossil-fuel vehicles account for 75% of the mileage on the country’s largest ride-hailing platform, contributing to a 10% decline in petrol consumption in May despite renewed tensions in the Middle East. Combined with ample strategic oil reserves and lower crude imports, the shift has helped cushion the economy against higher global oil prices.
- Technology shares came under pressure this week as investors questioned whether the more than $725 billion the four largest US technology companies are expected to invest in AI this year will generate returns sufficient to justify lofty valuations. The Philadelphia Semiconductor Index fell 4.3% on Thursday despite TSMC reporting record profit and raising its capital spending forecast, highlighting growing investor concern that rising AI spending may not generate sufficient returns to justify current valuations.
- Growing public opposition to AI data centres is emerging as a new risk to the US AI boom after Palm Beach County commissioners rejected a major project near Trump’s Mar-a-Lago estate on Wednesday, citing concerns over electricity and water demand, noise and its suitability for a residential area. The decision reflects a broader backlash that has delayed or blocked at least 75 US data centre projects this year, highlighting how local resistance is becoming a growing constraint on AI infrastructure investment.
- ASML lifted its annual sales forecast for the second time this year on Wednesday, raising 2026 net sales guidance to between €43 billion and €45 billion, well above the €39.3 billion analyst consensus, as surging AI demand drives orders for its chipmaking equipment. The company also announced plans to expand production to meet a backlog of orders queued for 2028.
- TSMC posted a record quarterly profit on Thursday, with earnings surging 77% to $22 billion as strong AI demand prompted it to raise 2026 capital expenditure guidance to $60 billion-$64 billion. The company also lifted its full-year revenue growth forecast to 40% from 30% and reaffirmed plans to invest a further $100 billion in the US, reinforcing confidence that the AI investment cycle remains strong.
- SK Hynix’s newly listed US shares traded at a premium of more than 50% to their Seoul-listed equivalents just three days after their Nasdaq debut, highlighting exceptionally strong global demand for AI semiconductor stocks. The valuation gap reflects investors’ willingness to pay a premium for easier access to one of the world’s leading AI memory chipmakers, with analysts expecting the disparity to narrow as cross-border share conversions become available later this month.
- Samsung Electronics is in the early stages of exploring a potential US listing through ADRs, following the record $26.5 billion US listing of rival SK Hynix, although the company denied it is reviewing such a move. Sources said on Tuesday that Samsung has held preliminary discussions with banks but has not decided whether to proceed. SK Hynix’s successful listing underscored strong investor demand for AI-related semiconductor companies.
- Nokia and Nvidia unveiled AI-powered network technology on Wednesday that is expected to double the amount of data telecom operators can transmit over the same airwaves by 2028, with spectrum efficiency improving by up to 50% from next year. The partnership reflects Nokia’s strategy to capitalise on the AI infrastructure boom after a sluggish 5G rollout by shifting towards recurring software subscriptions. Nokia’s shares have risen about 90% this year.
- JPMorgan reported a record quarterly profit of $21.2 billion on Tuesday, the highest ever by a US bank, driven by a surge in IPOs, including SpaceX’s record listing, and a 30% jump in investment banking fees. Revenue increased across all business units, prompting the bank to raise its 2026 net interest income forecast to $96.5 billion. Outgoing CEO Jamie Dimon said markets remained exuberant but warned it was unclear how long that would last.
- Goldman Sachs reported a strong second quarter on Tuesday as the revival in IPOs and mergers and acquisitions, together with volatile markets, lifted equities trading revenue 72% to a record $7.42 billion. Investment banking fees rose 55%, while continued growth in asset and wealth management helped diversify earnings. CEO David Solomon said market momentum had accelerated, reflecting confidence that dealmaking and capital markets activity continue to recover.
- SpaceX’s slide from its post-listing peak to below its IPO price in just over a month has dampened sentiment towards new US listings, dragging this year’s weighted average IPO return to 6%, behind the S&P 500’s 11%. The looming expiry of the post-IPO lock-up period following the company’s first earnings report in early August has added to selling pressure, while most companies that have listed over the past two months are now trading below their offer price. The recent sell-off suggests investors are becoming more selective, placing greater emphasis on valuations and earnings than AI-driven growth expectations.
- America’s largest-ever wealth transfer is expected to reinforce the country’s wealth divide, with affluent families set to receive the biggest share of the $93 trillion Baby Boomers are expected to pass on over the coming decades. Visa estimated on Tuesday that only about $36 trillion will ultimately reach younger generations after taxes, fees and spending, with much of the inherited wealth likely to remain invested rather than spent. The trend is expected to boost demand for wealth management, private banking and investment services.
- As at Thursday’s close, the S&P 500 was 0.55% down for the week.
Local News
- Bank of America expects the South African Reserve Bank (SARB) to raise interest rates by another 25 basis points next week, forecasting inflation will peak at 4.7% in June before easing to 4.2% in July as lower fuel prices feed through. The Reserve Bank’s six-member Monetary Policy Committee was already split over its May decision.
- Private fuel companies could be required to hold 21 days of emergency fuel reserves at their own expense under proposals released last week by Mineral Resources and Energy Minister Gwede Mantashe, replacing the current voluntary system as South Africa seeks to strengthen its strategic fuel security. The consultation document warned the economy could lose R1 billion a day if fuel supplies are disrupted. The proposal could require significant investment in additional storage capacity and increase compliance costs for the industry.
- President Cyril Ramaphosa is expected to know by next week whether the Western Cape High Court will grant his application to halt parliamentary impeachment proceedings linked to the Phala Phala scandal. The court reserved judgment on Thursday after hearing his bid for an interim interdict pending the hearing of his review application in September. The ruling could determine whether Parliament may continue its impeachment inquiry while Ramaphosa’s legal challenge to the independent panel’s findings is still before the courts.
- South Africa’s Finance Ministry is divided over the suspension of Public Investment Corporation CEO Patrick Dlamini, with Finance Minister Enoch Godongwana saying he was unaware of the decision announced on Monday by Deputy Finance Minister David Masondo. The suspension, following allegations contained in a whistleblower report, has intensified governance concerns of Africa’s largest fund manager, with the Financial Sector Conduct Authority announcing on Wednesday that it will investigate the PIC’s governance policies.
- South Africa is better placed than most African countries to move beyond mining into higher-value critical minerals processing, but logistics bottlenecks and policy uncertainty continue to deter investment, according to Moody’s. The country produces about half the world’s manganese and platinum group metals, yet captures only a fraction of the value, as the bulk of higher-value processing takes place in the US, Europe, Japan, and China. With global demand for critical minerals rising, the ratings agency said addressing energy, logistics and governance constraints is key to unlocking investment, lifting growth and improving South Africa’s credit profile.
- South Africa’s manufacturing revival depends on expanding exports into African markets, as domestic demand alone is no longer sufficient to drive growth, Deputy Trade Minister John Steenhuisen said on Tuesday. Manufacturing’s share of GDP has fallen from about 23% since the dawn of democracy to around 13%, weighed down by weak demand, ageing infrastructure and poor logistics. Yet intra-African trade still accounts for only 14% to 16% of the continent’s total trade, highlighting a significant growth opportunity.
- SARB is developing new regulatory frameworks for cryptocurrencies as rapid growth in digital assets raises financial stability concerns. Deputy Governor Fundi Tshazibana said last Friday that crypto trading accounts in South Africa have nearly doubled to eight million since early 2022, with almost R63 billion externalised through local platforms since 2019. While the SARB is developing frameworks for cross-border and domestic payments, Tshazibana stressed that crypto is “fundamentally… not money”.
- Eskom’s R54 billion tariff adjustment will leave South African households about R10 billion poorer and cost an estimated 41,000 jobs over the next two years, according to an economic impact assessment commissioned by the National Energy Regulator of South Africa. The study found low-income households will be hardest hit because electricity accounts for a larger share of their spending, highlighting the broader economic cost of higher power prices. The tariff decision is also facing a legal challenge over the transparency of the regulator’s approval process.
- De Beers’ decision to halt production at its Venetia mine for two years comes as parent Anglo American prepares to sell the diamond business amid a prolonged slump in natural diamond prices. The Limpopo mine accounts for about a tenth of De Beers’ production and 40% of South Africa’s diamond output, with more than 1,000 jobs at risk following retrenchment consultations. De Beers’ estimated value has fallen from about $12.75 billion in 2011 to $2.3 billion this year.
- Amazon’s Leo satellite broadband service will make its African debut in South Africa through a partnership with Herotel, with commercial service expected in 2027. The agreement gives Amazon an early foothold in the continent’s most advanced economy while rival Starlink remains unable to operate in South Africa because it has not met the country’s black economic empowerment (BEE) ownership requirements. Amazon said the South African launch will be the first step in a broader expansion across Africa.
- Coca-Cola Hellenic Bottling Company is on course for a secondary JSE listing by the end of the year after the Competition Commission recommended approval of its $2.6 billion acquisition of Coca-Cola Beverages Africa, bringing a company worth about R395 billion to the local bourse. The deal will create the world’s second-largest Coca-Cola bottling partner by volume and make South Africa its largest market, overtaking Russia, subject to final regulatory approvals.
- Chery plans to use its newly acquired Rosslyn manufacturing plant as the cornerstone of its electric vehicle strategy in South Africa, with production of hybrid, plug-in hybrid and battery-electric models expected to begin in 2027. The former Nissan facility will serve as Chery’s African manufacturing and export hub, supporting local production, supplier development and vehicle exports across the continent. The investment positions South Africa as Chery’s African manufacturing base as the Chinese automaker expands its next-generation vehicle portfolio.
- As at the time of writing, the rand was 1% weaker against the dollar, and the ALSI was 1% down for the week.
Sources: Dynasty, Bloomberg, Reuters, Daily Maverick, Business Day, Business Report, Associated Press, Investing.com, etc.
