At Inukshuk Capital Management, our focus is on building lasting relationships rooted in trust and collaboration. By focusing on active risk management and long-term value creation, we help families and institutions achieve financial sustainability.
Stay up-to-date on the latest developments by following us on LinkedIn here.
In this issue:
- Global Equity Market Performance
- Stock Effect
- Index ETF Effect
- Country ETF Effect
- Broader Country Effect
- July So Far
- Wrapping Up
Global Equity Market Performance
Outside of the US, equity markets had a good month. MSCI Emerging Markets and MSCI EAFE added 3.3%. The S&P/TSX 60 gained 1.8%. The S&P 500 was the only loser, down 1.2%.
This puts the S&P/TSX 60 back ahead of the S&P 500 on the year by 2.7%, after underperforming in May.
As of this writing—the second week of July—our systems are indicating positive momentum in all four equity markets, although there are still some signs of caution in the sector signals.
If you would like to stay current on our measures of trend and momentum in the markets we follow, please click here.
At the halfway point of 2026 the star performer is MSCI Emerging Markets, up 29.6%, compared with 8.6% for the S&P 500. The reason for this appears to be more AI effects. That’s what this letter will explore further.
Stock Effect
We’ve covered the impact of AI on the market from several different angles over the years.
Shortly after ChatGPT was released to the public, we wrote about the impact on the stock prices of large tech companies. We noted that Microsoft’s (MSFT) investment in OpenAI, the company that developed ChatGPT, had an immediate and significant positive impact on MSFT’s stock performance relative to Alphabet (GOOG).
Earlier this year, we wrote about the AI effect on software companies. MSFT is down 22.5% so far this year. Like most things, the AI effect is not predictable.
Last month’s topic was a comparison of the dot-com boom to the AI boom and the dominance of the chip makers in the performance of the Nasdaq 100.
Micron Technology (MU), on the other hand is having a great year, up 240%. Along with other chip makers Intel (INTC +210%) and Advanced Micro Devices (AMD +140%). Those three stocks account for nearly half of the Nasdaq 100’s performance.
Chip makers have become the market’s latest, hottest theme. Let’s see what this means for the ETFs of the world.
Index ETF Effect
Taiwan is now the largest component of the MSCI Emerging Markets index (27.5%), followed by Korea (21.1%) and China (19.6%).
MSCI isn’t the only major index provider whose benchmarks are used to construct ETFs. Another significant player is FTSE Russell, a subsidiary of London Stock Exchange Group. The best-known UK benchmark is the FTSE 100, commonly referred to as the ‘Footsie’. It also maintains indexes of many other countries, regions and classifications.
One ETF that tracks the FTSE Emerging Markets Index is Vanguard’s VEE. The interesting thing about this is that FTSE doesn’t consider South Korea an emerging market. That has implications for performance. The top three countries in that index are Taiwan (29.2%), China (27.9%) and India (16.4%).
If you owned the BMO MSCI EM ETF ZEM, you would be up 29.6% so far this year compared with 14.6% for the FTSE EM ETF VEE. That Korea component is significant.
It’s a good example of why it’s important to look under the hood when selecting ETFs for any kind of market exposure. In other words, it’s important to know what you own.
Both indexes have heavy Taiwan exposure. Let’s look at how Taiwan compares to the performance of Korea and the US
Country ETF Effect
The iShares MSCI South Korea ETF (EWY) and Taiwan ETF (EWT) track those countries’ stock markets.
As of the end of June, EWY is up 107.6% and EWT 70.9%, compared with a gain of 8.6% for the iShares S&P 500 ETF XSP. Two companies make up almost 50% of the MSCI South Korea Index: SK Hynix (25.1%) and Samsung (23.1%), some of the largest chip makers in the world. The largest component of the MSCI Taiwan Index is Taiwan Semiconductor Manufacturing Company, with a weight of 20.9%.
It doesn’t seem that long ago that there was a worry about the Magnificent Seven’s dominance of the S&P 500. Now, just three chip makers account for an extraordinary share of two countries’ benchmark indexes.
The AI effect is having a significant and often unexpected impact on the stock prices of many tech companies — and therefore on any indexes in which they are included.
But the effect extends beyond stocks and indexes: it is also shifting the relative value of entire countries’ equity markets.
Broader Country Effect
Calculating the market capitalization of any one country is a bit different from looking at the performance of its market indexes.
If you added up the value of every publicly traded company in a country, you would get that country’s total stock-market capitalization. Making these comparisons can be difficult because sources may use different dates, methodologies and data sets.
It’s not a perfect measure, but one source, MacroMicro, presents the trends in a simple format. The totals don’t match the World Bank statistics precisely, for example, but the ranking is the same.
In November 2022, when ChatGPT was released, the market cap of Canada was USD 2.7 trillion, compared with USD 1.7 trillion for South Korea and Taiwan at USD 1.5 trillion.
Just under four years later, at the end of June, the tables have turned. Canada has the smallest market cap of the three, Taiwan the largest and South Korea sits in the middle, although it has recently slipped.
It makes you wonder what the next AI effect will be.
July So Far
Canada Day was also the review deadline for the Canada—US—Mexico trade agreement. While Canada and Mexico indicated their wish to extend the deal for another 16 years, the US did not. US Trade Representative Jamieson Greer stated, “The United States will continue to engage with Mexico and Canada to address the agreement’s shortcomings and our trade deficits with these countries.” It looks like the market was anticipating this result. The Canadian dollar declined 4.5% in the two months leading up to the date and has since stabilized.
On July 8, at the NATO summit, President Trump said that the latest ceasefire deal in June with Iran was “over.” It’s difficult to keep track of developments, with both sides continuing to launch attacks throughout the various ‘ceasefires’. A ‘Schrödinger’s ceasefire’ might be an apt description. It seems to both exist and not exist, depending on who’s looking. Stocks were mostly unperturbed by the news, while oil climbed around 10% in the following days, after having fallen more than 40% from the April highs.
On July 14, IBM plummeted 25.2% after releasing preliminary second-quarter results that disappointed relative to expectations. In a letter to investors, the CEO explained: “While we anticipated some supply chain-related impact in our expectations, we did not anticipate the magnitude of the capex reprioritization…” In other words, one reason for the disappointing performance was that its clients were buying storage and memory, not IBM’s software or infrastructure products. AI seems to have struck again—to the tune of more than $68 billion in market value erased in a single day.
Today, July 15, the Bank of Canada held its target policy rate at 2.25%.
Month to date, the S&P/TSX 60 is up 2.2% and the S&P 500 is up 1.0%. The South Korea ETF is down 14.9%, while Taiwan is down 5.6%.
Wrapping Up
The AI boom continues to produce surprising effects at every level of the equity markets.
Whether AI is rewarding or punishing individual stocks—sometimes the same stocks at different times—causing entire sectors such as software to lag or allowing a handful of chip makers to drive an entire country’s performance, one thing is clear: knowing what you own matters. Broad labels like “tech” or “emerging markets” can hide very different realities beneath the surface.
Mister Market has a way of confounding even the best-informed investors. You could have been right about AI’s importance and still lost money. One day Microsoft is the AI winner, and the next, not so much.
This is why we prefer broad index ETFs and our rules-based systems. We don’t need to predict which sector or country will lead next. We simply measure momentum, manage risk and stay diversified across asset classes and strategies.
We will try to refrain from further AI coverage this year—unless something truly whacky happens and we can’t avoid it.
The Midsummer Classic was played on Tuesday just prior to publishing this letter. The Blue Jays were well represented. Dylan Cease started as the American League’s pitcher and threw one scoreless inning, striking out three while allowing no hits. Ernie Clement started at second base for the American League and went hitless in two at-bats. That’s kind of a summary of the Blue Jays’ season at a glance.
Enjoy the rest of the season.
Have a question? Contact us here
Challenging the status quo of the Canadian investment industry.
