AI Sell-Off Sparks Asset Rotation into Asian Equities
The unravelling of the AI trade following the US midterm elections is compelling investors to reassess their strategies in Asia, leading to a resurgence in interest for previously overlooked Chinese and Indian stocks, alongside firms likely to gain from a reduction in inflation and trade tensions. Aberdeen Investments expresses a preference for markets driven by robust domestic growth, notably India and Vietnam, while identifying potential gains in Chinese technology companies. Hedge fund Lotus Asset Management maintains a long position in Hong Kong equity futures, whereas Allianz Global Investors is focusing on the healthcare and consumer sectors. Asia has experienced significant impacts from the market fallout following the Democrats’ sweep of Congress. Many of the region’s largest companies – including Samsung Electronics Co. and SK Hynix Inc., as well as Taiwan Semiconductor Manufacturing Co. – serve as essential suppliers for the global AI development. This situation renders local markets particularly vulnerable as investors prepare for increased examination of the sector and ponder whether substantial investments in computing infrastructure will yield adequate returns. “I expect investors to diversify more broadly and reduce their concentration in the AI trade,” said Rajeev De Mello. “This should be supportive of China and other markets where valuations are less demanding.”
India could also benefit; however, its reliance on imported energy continues to pose a challenge, he added. Hao Hong indicated that he is taking a short position on oil and petrochemical companies while adopting a long stance on precious metals and Hong Kong equity futures. A Hong Kong gauge tracking mainland companies experienced a 5.2% increase last week, marking its strongest performance since March 2025. Meanwhile, certain global investors are considering the utilisation of China’s onshore market exposure as a means to diversify their AI-heavy portfolios, as noted by Jason Lui. India’s attractiveness has increased as oil prices have fallen, driven by expectations of a sooner resolution to the Iran conflict, thereby alleviating a significant pressure point for the energy-importing economy. The market’s limited exposure to AI is now perceived as a strategic advantage. LOGOS Asset Management’s chief investment officer Charlie Hong indicated that he divested his shares in SK Hynix Inc., Samsung Electronics Co., Intel Corp., and Lumentum Holdings Inc. last month. Subsequently, he has increased his investments in India by acquiring shares of emerging technology companies, financial institutions, and contract pharmaceutical manufacturers.
India’s benchmark Nifty 50 experienced an increase of 8.6% in the past week. registering its best week since 2021, as foreign investors re-entered the market with significant momentum. Foreign funds invested a net $1.9 billion into local shares last week through Wednesday. The abrupt transition has engaged market participants significantly. Utkarsh Singh, a senior manager at SBI-SG Global Securities Pvt. based in Mumbai, began responding to client enquiries from Singapore at 6:30 a.m. on Friday and maintained this engagement well into the day as Indian stocks experienced a rally. “Foreign investors are suddenly pouring in,” Singh said. “I have taken more calls from foreign funds this week than I have all year,” he said. “I think we will see more inflows.” Prior to the recent upturn, major indices in India and China were positioned among the least successful stock indexes globally for the year up to October. Beyond China and India, investors are reassessing previously neglected segments of Asian markets that present value opportunities and reduced exposure to the AI surge.
In a recent note, Michael Krautzberger, along with strategist Liam Wash, indicated that while defence and financial stocks may lag, healthcare and consumer staples firms are likely to experience an uptick. In Korea, Fidelity’s long-only portfolio manager Dale Nicholls noted early indications of a rotation extending beyond the semiconductor giants, especially among domestic pension funds. “Consumption-related areas stand out, spanning sectors from wellness through to some of the K-pop entertainment agencies” and Korea’s beauty and cosmetics industry, he said. At hedge fund ACG Management Pte., managing director Hui Ling Loh noted that Korea’s consumer stocks, encompassing retailers, cosmetics, and food and beverage sectors, are experiencing advantages due to the perception of being predominantly domestically orientated, thereby encountering minimal tariff and policy risks from the US. Phillip Wool said he sees opportunity in Korea and Taiwan, “but it’s going to be beyond the highest-profile chip stocks that have run up so much and are now subject to so much unease.”
One stock that Wool favours is LG Electronics Inc., which he maintains in his active emerging-markets exchange-traded fund. The company sells a significant number of TVs, refrigerators, and washing machines in the US, which “could be a catalyst for some upside as tariff pressure eases,” he said. The prospect of less isolationist US trade policies has also raised investor confidence in auto firms including Japan’s Toyota Motor Corp. and South Korea’s Hyundai Motor Co. Not all individuals are prepared to forsake AI. Some investors suggest that the selloff could present a chance to capitalise on the dip, considering the sector’s long-term growth potential. However, at this juncture, a sense of caution continues to dominate the sentiment. Foreigners will likely continue to sell Asia’s AI “picks and shovels” stocks, said Manishi Raychaudhuri. “India and China are the only two large liquid markets offering a considerable array of non-AI exposures.
