Investors Shift Focus to China and India Amid AI Market Pullback

After the US midterm elections, the enthusiasm for artificial intelligence-related investments has cooled, prompting investors to reconsider their strategies in Asian markets. This change has sparked renewed interest in Chinese and Indian stocks, alongside companies likely to benefit from easing inflation and improved trade relations.

Investment firms such as Aberdeen Investments are now prioritizing markets supported by solid domestic growth, including India and Vietnam. They also see potential in Chinese technology companies. Hedge fund Lotus Asset Management is taking a long position in Hong Kong equity futures, while Allianz Global Investors is focusing on healthcare and consumer sectors.

Asia has experienced considerable volatility following the Democratic Party's congressional victories in the US. Key players in the region, like Samsung Electronics Co., SK Hynix Inc., and Taiwan Semiconductor Manufacturing Co., are integral suppliers to the global AI infrastructure. As investors become more cautious about the industry's future returns and anticipate increased regulatory scrutiny, these markets have been particularly vulnerable.

Rajeev De Mello, global macro portfolio manager at Gama Asset Management SA, indicated that investors are expected to diversify away from concentrated AI bets. He mentioned that this trend could support markets like China and others where stock valuations appear more reasonable. India also presents opportunities, although its reliance on imported energy remains a challenge.

Hao Hong, chief investment officer at Lotus Asset Management, revealed his strategy involves betting against oil and petrochemical sectors while going long on precious metals and Hong Kong equity futures. Last week, a Hong Kong index tracking mainland Chinese companies rose by 5.2 percent, marking its strongest weekly performance since March 2025.

Global investors are increasingly considering China’s onshore markets as a way to diversify portfolios that have been heavily weighted toward AI-related stocks, according to Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas SA.

India’s market appeal has strengthened as oil prices declined amid expectations of an earlier resolution to the conflict in Iran, which reduces pressure on the energy-importing economy. The Indian market’s minimal exposure to AI is now viewed as advantageous. Charlie Hong, chief investment officer at LOGOS Asset Management, shared that he recently sold shares in major semiconductor and technology companies such as SK Hynix Inc., Samsung Electronics Co., Intel Corp., and Lumentum Holdings Inc. Simultaneously, he increased his holdings in Indian companies focused on new-age technology, financial services, and contract drug manufacturing.

The Nifty 50 index in India surged 8.6 percent last week, marking its best weekly gain since 2021, fueled by a significant return of foreign investors. Data shows that foreign funds injected a net $1.9 billion into Indian equities through Wednesday of last week.

Market participants have been busy responding to the influx. Utkarsh Singh, a senior manager at Mumbai-based SBI-SG Global Securities Pvt., noted a sharp increase in inquiries from overseas investors, especially from Singapore, starting early Friday morning. “Foreign investors are suddenly pouring in,” Singh commented. “I have taken more calls from foreign funds this week than all year. I expect further inflows to continue.”

Before this recent rally, major stock indices in India and China ranked among the worst performers globally through October of this year.

Beyond China and India, investors are also revisiting less popular Asian sectors that offer value and reduced exposure to the AI boom. Allianz Global Investors suggests healthcare and consumer staples firms could see gains, even as defense and financial stocks might lag.

In South Korea, portfolio manager Dale Nicholls at Fidelity observes an emerging rotation away from semiconductor giants, especially among domestic pension funds. He highlights consumption-related industries, including wellness, K-pop entertainment agencies, and the beauty and cosmetics sector, as areas of interest.

Hui Ling Loh, managing director at hedge fund ACG Management Pte., added that South Korean consumer companies such as retailers, cosmetics, and food and beverage sectors are benefiting from their primarily domestic focus and limited exposure to US tariff and policy risks.

Phillip Wool, head of portfolio management at Rayliant Global Advisors, sees opportunities in Korea and Taiwan beyond the headline semiconductor stocks, which have recently faced heightened uncertainty. Wool favors companies like LG Electronics Inc., which sells household appliances in the US and could profit as tariff pressures ease.

The prospect of a less protectionist US trade approach has also improved investor confidence in automotive manufacturers such as Japan’s Toyota Motor Corp. and South Korea’s Hyundai Motor Co.

While some investors remain cautious about AI stocks, viewing the recent selloff as a chance to buy at lower prices due to the sector’s long-term potential, the prevailing sentiment continues to be one of prudence. Manishi Raychaudhuri, CEO of Emmer Capital Partners Ltd., noted that foreign investors are likely to keep reducing exposure to Asia’s AI-related stocks. According to him, China and India stand out as the only sizable liquid markets offering a broad array of investment options with less AI concentration.