(March 4): Foreigners are fleeing from Asia’s hottest markets this year, as exuberance in the artificial-intelligence trade gives way to fears about an oil-driven inflation shock.
Overseas investors sold about US$3.1 billion of South Korean shares this week after offloading a record US$13.7 billion last month. In Taiwan, they dumped another US$3.6 billion, putting the market on track for the biggest weekly outflow since late December.
The pullback has been concentrated in high-flying chipmakers that had propelled both markets to record highs until last month. In Korea, memory chip heavyweights Samsung Electronics Co and SK Hynix Inc have each fallen almost 20% this week, with the former headed for its worst two-day rout in almost five decades. Shares of Taiwan Semiconductor Manufacturing Co have fallen more than 5% this week.
“Crowded longs in AI and everything else were sold aggressively in the race to bring down exposures across markets as Iran situation seems to have deteriorated,” said Matthew Haupt, portfolio manager at Wilson Asset Management in Sydney. The selloff has landed heavily on AI-linked stocks, he added, as questions linger over whether the sector’s big capital spending plans can ultimately generate enough profits.
The week’s retreat has given fresh impetus to naysayers who have long warned that the euphoric rally in all things AI is running ahead of reality. The concerns are now colliding with a seismic geopolitical shock that’s forcing investors to reassess risk, game plan the inflationary threat of higher oil prices and consider how those pressures could ripple across global markets.
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Korea’s benchmark Kospi Index, which had been the world’s best-performing market this year, tumbled more than 12% at some point on Wednesday (March 4), putting it on track for the worst day on record. The market was closed on Monday. Taiwan’s Taiex Index has tumbled more than 6% so far this week.
The caution is also spilling into currency markets, with the Korean won settling 3.3% lower versus the dollar on Tuesday, the largest single-day loss on a closing basis since 2009. The won and the Taiwan dollar are among the worst performers in Asia this month, suggesting global funds are pairing equity selling with FX hedges given the volatility.
For months, Asian markets had appeared largely immune to warnings over the AI rally. The region’s suppliers were seen as resilient, undervalued and beneficiaries of relentless spending by tech giants. Yet as crowded positioning stacked up, the swiftness of the declines shows that many investors are choosing to sell first and ask questions later — even if the longer-term outlook remains intact.
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With risks mounting in the Middle East, investors “need to focus on appropriate means of diversification and hedges in their portfolio", Kerry Craig, global markets strategist at JPMorgan Asset Management, said on Bloomberg TV on Wednesday. “Should the outlook start to improve, we may see investors that want to move back into those markets.”
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