Foreign investors abandon Korea and Taiwan, look to India as concerns about AI bubble grow

As doubts about AI spending and profitability grow, foreign investors are pulling billions out of Korea and Taiwan and turning to India’s indexes, which have relatively little exposure to AI stocks.

Foreign investors are pulling billions of dollars out of Korean and Taiwanese stocks, the core of the AI chip supply chain, and turning to India as concerns about an AI bubble mount.

A growing number of foreign investors seem to be engaging in the so-called anti-AI trade, minimizing their exposure to the risks of concentrated AI-centered bets.

They net sold $49.77 billion in shares across seven Asian markets in October, the largest monthly outflow since June, Reuters reported on Wednesday, citing data from the London Stock Exchange Group. Taiwan accounted for $30.68 billion, and Korea for $14.59 billion; together, they comprised about 91 percent of the total.

From Nov. 1 through Tuesday, foreign investors have sold another net $22.6 billion in Asian stocks, including $19.76 billion in Taiwan and $8.32 billion in Korea. But they bought a net $5.68 billion in Indian shares over the same period after net selling $3.6 billion in October.

India’s benchmark Nifty 50 closed up 0.84 percent at 25,255.05 on Wednesday, bringing its gain this month to 9.6 percent. Including Wednesday’s trading, foreign net purchases stood at $6.43 billion, according to Reuters’ provisional count — the largest monthly total for the index since September 2024.

The exodus from Korea and Taiwan reflects doubts about whether global big tech companies’ investments into AI data centers and related infrastructure will pay off. With Democrats taking control of Congress after the U.S. midterm elections earlier this month, concerns about possible stricter data center regulations have also likely contributed to the anti-AI trade.

“The outflows reflect a retreat from AI-linked positions [due to] increased doubts about [related] infrastructure spending and profitability,” Wael Makarem, the lead financial market strategist at brokerage Exness, told Reuters.

Global investment banks are shifting their asset allocation strategies in response. Jefferies raised India’s weighting in its Asia-Pacific ex-Japan portfolio from 12 percent to 14 percent and cut Korea’s and Taiwan’s by 1 percentage point each, Indian business news outlet Moneycontrol reported.

The anti-AI trade has also spurred concerns that a slowdown in AI investment could hurt the real economies of chip-exporting countries. Economic consultancy Capital Economics estimates that up to 80 percent of the recent growth in global exports came from AI-related products, The Wall Street Journal reported on Wednesday.

But if data center investment slows, “AI [capital spending] will turn from a major prop to a drag on world trade,” Marcel Thieliant, the head of Asia-Pacific at Capital Economics, wrote in a report.

Unlike Korea and Taiwan, India has relatively little exposure to AI stocks, and domestically focused sectors such as banking, autos and consumer goods prop up its market. Falling oil prices, driven by hopes of easing tensions in the Middle East conflict, are another plus. As India relies heavily on imported crude, cheaper oil eases pressure on its inflation and current account.

Investment bank Citi estimates that every $10 drop in the price of a barrel of oil could lift Indian companies’ earnings per share by about 2 percent. Net profit at Nifty 50 companies rose 19 percent from a year earlier in the latest quarter, the Financial Times reported.

HSBC upgraded Indian stocks to overweight from neutral on Monday. Indian companies’ earnings are solid, and their valuations have become more reasonable, a team led by Herald van der Linde, HSBC’s head of equity strategy for Asia-Pacific, stated in a note.

Some, however, remain cautious about whether India’s rally will last. Investment firm Bernstein raised its year-end target for the Nifty 50 to 26,100 but kept its neutral view for the next 12 months.

“India is increasingly being pitched as the hedge to the global AI trade,” Bernstein said in a report earlier this month. “We disagree. India is neither an AI beneficiary nor an anti-AI trade.”

BY PARK YU-MI [cho.yongjun1@joongang.co.kr]