AI stock selloff drives investors to China, India, and overlooked Asian sectors

As a result of a sharp decline in artificial intelligence stocks following the U.S. midterm elections, investors are gravitating towards Chinese and Indian equities, as well as less technology-dependent sectors across Asia. This shift comes amidst growing concerns about the valuations and returns on significant infrastructure spending in AI-related industries.

South Korea's Samsung Electronics, SK Hynix, and Taiwan Semiconductor Manufacturing have all experienced selling pressure, as investors question whether AI investments will yield sufficient profits. In response, China has become an attractive alternative, with a Hong Kong index tracking mainland Chinese companies gaining 5.2% last week, marking its strongest performance since March 2025. The surge in interest is driven by investors seeking more affordable valuations and reduced technology concentration.

India has also captured strong buying sentiment, with the Nifty 50 surging 8.6%, its largest weekly advance since 2021. This growth is fueled by renewed foreign interest and the expectation that declining oil prices could positively impact the energy-dependent economy. Foreign investors poured a net $1.9 billion into Indian equities, reversing previous weakness and reversing a market that has lagged behind global peers for most of the year.

Investors are increasingly favoring domestic growth opportunities in India, such as financial companies, contract drug manufacturers, and consumer-focused businesses. Meanwhile, Vietnam is also gaining attention for its domestic growth prospects. In South Korea, investors are looking beyond the major chipmakers towards businesses like cosmetics, entertainment, retail, and food, whose revenues are less directly linked to AI infrastructure spending.

Additional sectors gaining attention include healthcare, consumer staples, and manufacturers that could benefit from reduced U.S. trade barriers. LG Electronics, with its exposure to American household appliance and television markets, has emerged as a potential beneficiary of easing tariff pressures. Some investors still view the AI downturn as a buying opportunity, but the immediate trend favors diversification into businesses with distinct earnings drivers.