AI Stock Slump Sends Investors Back to Asia’s Forgotten Markets — India and China in Focus

For most of this year, one trade dominated Asian stock markets: artificial intelligence. Money poured into the chipmakers and suppliers building the AI boom, above all in South Korea and Taiwan. Then, in the space of a week, the mood flipped. AI stocks fell hard, and investors started looking again at the markets they had ignored for months — China and India.

The shift follows the Democrats’ sweep of Congress in the US midterm elections, which has raised the prospect of tougher scrutiny of the AI industry and even a possible pause on new AI data centres. The result is one of the sharpest rotations in Asian markets this year: money moving out of the AI “picks and shovels” and into cheaper, less crowded corners of the region.

Here is what happened, why it matters, and where the money is going now.

What happened

The AI trade began to unravel after the US midterm elections, when the Democrats took control of Congress. Investors are now bracing for greater scrutiny of the AI industry and questioning whether the enormous spending on computing infrastructure will ever generate enough returns to justify it.

Asia has been among the hardest hit by the fallout. Many of the region’s biggest stocks — from Samsung Electronics and SK Hynix in South Korea to Taiwan Semiconductor Manufacturing Co. (TSMC) — are critical suppliers to the global AI build-out. That left local markets especially exposed when sentiment turned.

The selling was brutal. The Nasdaq 100 fell 6.4 per cent in a single session, wiping about $2.3 trillion in value in its worst trading day since March 2020. In Asia, South Korea’s Kospi index fell as much as 8.8 per cent, triggering a circuit breaker that temporarily halted trading, with Samsung and SK Hynix each falling more than 6 per cent. Japan’s Nikkei index dropped 5.7 per cent.

The trigger, analysts said, was growing fear of a moratorium on new AI and technology data centres after the Democrats’ gains, along with worries about tighter AI regulation and competition with China. Nomura, the Japanese bank, has pointed out that a federal AI data centre moratorium is unlikely — but the fear alone was enough to send investors running.

“I expect investors to diversify more broadly and reduce their concentration in the AI trade,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management. “This should be supportive of China and other markets where valuations are less demanding.”

The sell-off in numbers

The scale of the reversal is striking, because the AI trade had run so far, so fast.

Jefferies, the global brokerage, highlighted a sharp correction in Chinese semiconductor stocks. Its China AI Semiconductor Top 10 Index surged 109 per cent in dollar terms during the first half of 2026, reaching a peak in June — and has since fallen 50 per cent. An index of memory-chip companies — Micron, Samsung Electronics and SK Hynix — has fallen about 40 per cent from its late-June peak.

The spending behind the boom remains enormous. Consensus estimates suggest Microsoft, Amazon, Alphabet and Meta could collectively spend $1.04 trillion on capital expenditure in 2027. Jefferies believes the AI capital expenditure cycle could peak this year, although actual spending data has yet to confirm a slowdown.

That spending has mattered far beyond the tech sector. Jefferies noted that AI-related capital expenditure contributed 1.39 percentage points — or 67 per cent — of US real GDP growth of 2.1 per cent in the four quarters to September 2026. In other words, two-thirds of America’s recent economic growth came from AI investment. That is exactly why investors are so nervous: if the spending slows, the growth story weakens with it.

China and India as hedges

The money leaving AI stocks has to go somewhere — and two markets stand out.

A Hong Kong gauge tracking mainland Chinese companies gained 5.2 per cent last week, its best performance since March 2025. Some global investors are interested in using China’s onshore market as a diversifier for their AI-heavy portfolios, according to Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas.

India has attracted even stronger buying. The Nifty 50, India’s benchmark index, gained 8.6 per cent last week — its best week since 2021 — as overseas investors returned in force. Foreign funds poured a net $1.9 billion into local shares last week through Wednesday, 4 November.

India’s appeal has grown for two reasons. First, oil prices have declined on expectations of an earlier end to the Iran war, easing a key pressure point for an economy that imports most of its energy. Second, India’s market has very little exposure to AI — and that is now seen as an advantage rather than a weakness.

The shift is visible in real portfolios. Charlie Hong, chief investment officer at LOGOS Asset Management, said he sold his shares in SK Hynix, Samsung Electronics, Intel and Lumentum Holdings last month and has since boosted his Indian holdings with shares of new-age tech companies, financial firms and contract drug manufacturers.

Before the latest gains, key benchmarks in India and China had ranked among the world’s worst-performing stock indexes this year through October. That is precisely what makes them attractive now: they are cheap relative to the AI-heavy markets, and they offer something those markets cannot — diversification away from a single crowded trade.

Aberdeen Investments now favours markets powered by stronger domestic growth, including India and Vietnam, and sees upside in Chinese technology firms. Hedge fund Lotus Asset Management is long Hong Kong equity futures, while Allianz Global Investors is looking at healthcare and consumer companies.

“India and China are the only two large liquid markets offering a considerable array of non-AI exposures,” said Manishi Raychaudhuri, chief executive officer of Emmer Capital Partners. “Foreigners will likely continue to sell Asia’s AI picks and shovels stocks.”

Going beyond AI

The rotation is not limited to China and India. Investors are taking a fresh look at previously overlooked corners of Asian markets that offer value and less exposure to the AI boom.

In South Korea, Fidelity’s long-only portfolio manager Dale Nicholls said he sees early signs of rotation beyond the semiconductor heavyweights, particularly among domestic pension funds. “Consumption-related areas stand out, spanning sectors from wellness through to some of the K-pop entertainment agencies” and Korea’s beauty and cosmetics industry, he said.

At hedge fund ACG Management, managing director Hui Ling Loh said Korea’s consumer stocks — including retailers, cosmetics, food and beverage companies — are benefiting from the perception that they are largely domestically oriented and face limited tariff and policy risks from the United States.

Phillip Wool, head of portfolio management at Rayliant Global Advisors, said he sees opportunity in Korea and Taiwan, “but it’s going to be beyond the highest-profile chip stocks that have run up so much and are now subject to so much unease.” One stock he likes is LG Electronics, which he holds in his active emerging-markets exchange-traded fund. The company sells a lot of TVs, refrigerators and washing machines in the US, which “could be a catalyst for some upside as tariff pressure eases,” he said.

The prospect of less isolationist US trade policies has also raised investor confidence in carmakers, including Japan’s Toyota Motor Corp. and South Korea’s Hyundai Motor Co.

Allianz Global Investors, meanwhile, expects healthcare and consumer staples firms to get a boost, while defence and financial stocks could underperform, its chief investment officer for public markets Michael Krautzberger and strategist Liam Wash wrote in a recent note.

What the big brokers are doing

Jefferies has already moved its model portfolio to match the new mood. In its latest GREED & fear report, dated 5 November, Christopher Wood raised India’s recommended weighting in its Asia-Pacific ex-Japan portfolio to 14 per cent — two percentage points above its 12 per cent benchmark weight. At the same time, Jefferies cut South Korea’s allocation by one percentage point to 18 per cent and Taiwan’s by one percentage point to 24 per cent, keeping both underweight.

The changes come as AI-linked semiconductor stocks face sharp corrections and investors reassess whether the massive technology infrastructure spending boom can last. Importantly, these are changes to Jefferies’ recommended model portfolio, not actual foreign institutional investor inflows — but they signal where professional money managers think the next gains will come from.

On the ground, the shift feels sudden. Utkarsh Singh, a Mumbai-based senior manager at SBI-SG Global Securities, started taking calls from clients in Singapore as early as 6:30 a.m. on Friday and continued fielding queries late into the day as Indian stocks rallied. “Foreign investors are suddenly pouring in,” Singh said. “I have taken more calls from foreign funds this week than I have all year. I think we will see more inflows.”

What about Pakistan?

Pakistan’s own stock market has held up well through the global turbulence. The Pakistan Stock Exchange ended last week up 4.5 per cent, despite a 1,493-point fall on Friday. For Pakistani investors, the lesson of the week is the same one global fund managers are learning: when one trade gets too crowded, the money eventually moves — and the markets that were left behind can suddenly look like the best value on offer.

Is the AI boom over?

Not everyone is ready to abandon AI. Some investors say the sell-off may offer an opportunity to buy the dip, given the sector’s longer-term growth prospects. The technology itself has not gone away, and the biggest companies in the world are still planning to spend more than a trillion dollars on AI infrastructure next year.

But for now, caution is the prevalent mood. The question investors are asking is no longer “how much can AI stocks rise?” but “what happens if the spending slows?” Until that question has an answer, the rotation away from AI and towards the forgotten markets of Asia is likely to continue.

Frequently asked questions

What is the “AI trade”?

The “AI trade” is the nickname for the wave of investment into companies that build the technology behind artificial intelligence — mainly chipmakers such as Nvidia, Samsung, SK Hynix and TSMC, along with the firms that supply them. For much of 2026, these stocks drove global markets higher.

Why did AI stocks fall?

AI stocks fell after the Democrats swept Congress in the US midterm elections. Investors worried about tougher regulation of the AI industry and a possible pause on new AI data centres, and began questioning whether the huge spending on AI infrastructure would generate enough profit to justify it.

Why are India and China benefiting?

India and China were among the world’s worst-performing stock markets this year through October, so their shares are relatively cheap. They also have very little exposure to the AI trade, which makes them attractive to investors who want to spread their risk away from one crowded bet. India’s Nifty 50 rose 8.6 per cent last week, its best week since 2021.

Does this mean the AI boom is finished?

Not necessarily. The biggest technology companies still plan to spend heavily on AI, and some investors see the sell-off as a chance to buy at lower prices. But the easy, one-way gains of the AI trade look over for now, and fund managers are spreading their money more widely.

What should ordinary investors do?

There is no single right answer, and this article is not financial advice. What the week has shown is the value of diversification: when one popular trade falls, markets and sectors that looked boring a month ago can suddenly perform well. Anyone investing should understand the risks and consider speaking to a licensed financial adviser.

Conclusion

The AI stock slump has done something few events can: it has made investors look again at the markets they spent a year ignoring. China and India, the two worst performers of the year until October, are suddenly the places where money is flowing. South Korea’s consumer stocks, Taiwan’s non-chip companies and Japan’s carmakers are all getting a fresh look too.

The AI boom is not necessarily over — the spending plans are still enormous. But the era in which a single trade carried the whole market looks finished, at least for now. For investors across Asia, including in Pakistan, the message of the week is simple: the forgotten markets are forgotten no longer.

Sources

• https://www.business-standard.com/markets/news/ai-slump-revives-asia-s-forgotten-stock-bets-from-china-to-india-126110800052_1.html
• https://www.businesstimes.com.sg/companies-markets/capital-markets-currencies/ai-rout-after-us-midterms-hits-asia-hard-reviving-out-favour-chinese-and-indian-stocks
• https://www.businesstoday.in/markets/story/ai-stock-rout-jefferies-increases-india-allocation-to-14-trims-exposure-to-korea-and-taiwan-566336-2026-11-08
• https://www.businesstoday.in/amp/markets/stocks/story/bt-explainer-why-stock-markets-are-falling-behind-ai-rout-likely-impact-on-india-566082-2026-11-06

This article is for general information and education only. It is not legal or financial advice.