AI slump revives Asia’s forgotten trades from China to India

The unraveling of the AI trade following the U.S. midterm elections is prompting investors to reassess their Asia investment strategy, leading to increased interest in previously overlooked sectors. Aberdeen Investments favors markets driven by stronger domestic growth, such as India and Vietnam, and anticipates upside potential in Chinese technology companies.

Hedge funds, including Lotus Asset Management and Allianz Global Investors, have shifted their focus towards healthcare and consumer companies. Asia has been significantly impacted by the market fallout from the Democratic Party's victory in Congress, with major stocks like Samsung Electronics and SK Hynix being crucial suppliers to the global AI industry.

This has left local markets vulnerable to increased scrutiny and doubts about whether the substantial investment in computing infrastructure will yield adequate returns. Rajeev De Mello, a global macro portfolio manager at Gama Asset Management SA, expects investors to diversify more broadly, reducing their concentration in the AI sector, which could benefit China and other markets with more favorable valuations.

India's potential gains are tempered by its dependence on imported energy. The Hong Kong Stock Exchange, which tracks mainland companies, saw a 5.2% increase last week, marking its best performance since March 2025. Global investors are exploring China's onshore market exposure as a potential diversifier from their AI-heavy portfolios.

India has gained favor due to declining oil prices, driven by expectations of an earlier resolution to the Iran conflict, easing a critical pressure point for the energy-importing economy. The market's reduced exposure to AI is now viewed as an advantage. Investors like LOGOS Asset Management's Charlie Hong and chief investment officer at Allianz Global Investors Michael Krautzberger and strategist Liam Wash are revisiting sectors such as healthcare and consumer staples for value and reduced exposure to the AI boom.

In Korea, Fidelity's long-only portfolio manager Dale Nicholls anticipates early signs of rotation beyond semiconductor heavyweights, particularly in consumption-related areas like wellness, K-pop entertainment, and cosmetics. ACG Management's Loh Hui Ling highlights the potential benefits of Korean consumer stocks due to their perceived limited tariff and policy risks.

Phillip Wool of Rayliant Global Advisors sees opportunity in Korea and Taiwan, but suggests looking beyond the highly-profiled chip stocks, which have surged and now face increased uncertainty.