Big Asia Stock Funds Flee Volatile AI Trades for Overlooked Laggards
Fidelity, BNP Paribas and others are trimming Korean equities and semiconductors, rotating into Chinese internet giants, Indian tech and Southeast Asian banks to cut AI-driven risk.
In Brief
- Fidelity International and BNP Paribas Asset Management are reducing exposure to Korean equities and semiconductors to add bets on Chinese companies, while M&G cuts Taiwan and Eastspring rotates into India
- Korean shares slumped more than 21% in the month and Taiwan’s fell over 5%, with overseas investors pulling about $4.4 billion from Korea and $19 billion from Taiwan
- Southeast Asian stocks are on track for their best monthly performance versus broader Asia in 24 years, with the MSCI ASEAN Index up 5.8% against a near 4% decline for the MSCI Asia Pacific Index
Investors in Asia are snapping up stocks from Indonesian banks to Chinese e-commerce titans and Indian technology firms, trimming bets on popular AI trades that have turned increasingly volatile, Bloomberg reported. The rotation marks a notable shift in mood among some of the region’s largest fund managers.
Fidelity International and BNP Paribas Asset Management are among those reducing exposure to Korean equities and semiconductors to add wagers on Chinese companies. Similarly, M&G Investments has cut holdings in Taiwan while Eastspring Investments has rotated into laggards including India.
As a result, Southeast Asian stocks are on track for their best monthly performance against broader Asian peers in 24 years, with Indonesia one of the world’s top performers in July. India, meanwhile, is among the regional markets that have drawn the most foreign inflows this month.
What is driving the Asia stock funds rotation
The reshuffle highlights growing caution on the AI trade, which in Asia has been marked by wild swings in markets such as South Korea. Even as global chip stocks staged a partial recovery from a rout earlier in the month, nagging concerns about firms’ ability to monetize the technology have pushed more managers toward defensive sectors — banks, consumer goods — and underperformers including China’s internet giants.
“The extreme volatility you’re seeing in Korea and to a lesser extent Taiwan has made it a little bit more difficult to buy the dip,” said Ian Samson, a portfolio manager at Fidelity. “The volatility means that from a portfolio construction perspective, we have to be careful about buying too aggressively.” Citigroup has likewise cut Korean stocks and upgraded Chinese peers in its emerging-market allocation.
The scale of the exodus is striking. Korean shares slumped more than 21% during the month while Taiwan’s fell over 5%, with overseas investors pulling about $4.4 billion and $19 billion from Korean and Taiwanese equities, respectively. “Kospi VIX remains super elevated and waiting for the leverage holdings to wash out,” said Matthew Haupt of Wilson Asset Management. “There are more stable markets to trade themes rather than Korea at the moment.”
Where the money is going instead
Hong Kong’s Hang Seng Index is set for its biggest monthly outperformance ever against Korea’s Kospi gauge, boosted by catch-up gains in Chinese internet giants and banks. Elsewhere, the MSCI ASEAN Index has climbed 5.8% this month, versus a near 4% decline in the MSCI Asia Pacific Index — its biggest monthly outperformance in more than two decades.
Leading the Southeast Asian pack, Thai stocks have surged around 30% this year on bets the current government will end years of political turbulence, while in Indonesia banks rallied after a surprise central bank rate hike. India has received about $2 billion of global fund inflows into its equities this month, with beaten-down IT names HCL Technologies and Tata Consultancy Services rallying about 18% and 11% in July.
The rotation may prove tentative. Longer-term optimism about AI demand and earnings growth remains, and a renewed surge in oil prices threatens energy-dependent markets like Southeast Asia and India. As one investor put it, the trimming of Korea exposure has been “tactical rebalancing rather than a structural” shift — a hedge against volatility rather than a verdict on AI itself.
FAQ
Why are Asian funds rotating out of AI trades?
Growing caution about volatility in AI-linked markets — especially South Korea — plus concerns about whether firms can monetize the technology have pushed managers like Fidelity and BNP Paribas toward defensive sectors and laggards such as Chinese internet giants and Indian tech.
How badly did Korean and Taiwanese stocks fall?
Korean shares slumped more than 21% during the month and Taiwan’s fell over 5%, with overseas investors pulling about $4.4 billion from Korean equities and $19 billion from Taiwanese equities.
Which markets are benefiting from the rotation?
Southeast Asian stocks are on track for their best month versus broader Asia in 24 years, with the MSCI ASEAN Index up 5.8%. Hong Kong, India, Indonesia and Thailand are among the beneficiaries as money flows into laggards.
