The unravelling of the artificial intelligence trade after the United States midterm elections is forcing investors to rethink their Asia playbook, reviving demand for out-of-favour Chinese and Indian stocks and for companies set to benefit from easing inflation and trade tensions. The AI sell-off Asia is now seeing has hit the region harder than most, because many of its biggest stocks supply the global AI build-out and now face greater scrutiny of the industry and doubts over whether massive spending on computing will pay off.
Asia’s exposure is the heart of the problem. Samsung Electronics and SK Hynix in South Korea and Taiwan Semiconductor Manufacturing Company are critical suppliers to the global AI build-out, leaving their home markets exposed as investors question the returns on data centre spending. The Democrats’ sweep of Congress in the midterm elections added to the pressure, with investors bracing for tighter oversight of the industry. Rajeev De Mello, global macro portfolio manager at Gama Asset Management, said he expects investors to diversify more broadly and reduce their concentration in the AI trade, a view that sums up the AI sell-off Asia rotation.
AI sell-off Asia turns China and India into hedges
China and India are the main beneficiaries of the AI sell-off Asia shift. Aberdeen Investments 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. A Hong Kong gauge tracking mainland companies gained 5.2 per cent last week, its best performance since March 2025.
India’s appeal has grown for two reasons. Oil prices fell on expectations of an earlier end to the Iran war, easing a key pressure point for an economy that imports about 85 per cent of its crude, and the market’s lack of AI exposure is now seen as an advantage rather than a gap. The AI sell-off Asia is working through has pushed money toward Indian shares: the Nifty 50 gained 8.6 per cent last week, its best week since 2021, as overseas investors returned in force.
Fund managers are acting on the shift. 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 technology companies, financial firms and contract drug manufacturers. Foreign funds poured a net 1.9 billion dollars into Indian shares last week through Wednesday, reversing a year in which Indian benchmarks had lagged global peers. Hao Hong, chief investment officer at Lotus, said he is betting against oil and petrochemical firms and going long precious metals and Hong Kong equity futures.
AI sell-off Asia and the rotation out of tech
The rotation reaches beyond China and India as the AI sell-off Asia continues. Investors are taking a fresh look at companies poised to benefit from easing inflation and trade tensions, including consumer and healthcare names that were left behind during the AI rally. Manishi Raychaudhuri, chief executive of Emmer Capital Partners, said foreigners will likely keep selling Asia’s AI “picks and shovels” stocks, adding that India and China are the only two large liquid markets offering a considerable array of non-AI exposures. Before the latest gains, benchmarks in India and China had ranked among the world’s worst-performing stock indexes this year through October.
The shift is not without risk. India still depends on imported energy, and a rebound in oil prices would restore one of the pressures that has just eased. China’s recovery depends on trade frictions continuing to ease, and the AI trade could steady if data centre spending proves its worth. The AI sell-off Asia has seen so far is a rotation, not a collapse, and the money moving into China and India is moving because those markets offer something the AI trade no longer does: distance from the question of whether the spending pays.
What the AI sell-off Asia means for investors
For now, the numbers favour the rotation. The Nifty’s 8.6 per cent weekly gain came with foreign buying of 1.9 billion dollars in three days, and the Hong Kong gauge of mainland companies posted its best week in more than a year and a half. The AI sell-off Asia is digesting has forced a wider rethink: portfolios built around a single theme are being spread across domestic growth, cheaper valuations and sectors that benefit when inflation eases. Whether that rethink lasts will depend on the next round of earnings and on oil, but the week’s flows show where the money is going while the AI trade is questioned.