Asian equity markets are experiencing significant pressure as the AI trade faces a potential bottoming out, with multiple headwinds converging to challenge the momentum that has dominated markets. South Korea, this year's strongest-performing market, is highly concentrated in tech and heavy industry, making it particularly vulnerable to the current selloff. According to Santa Lucia Asset Management CEO Florian Weidinger, '80% of P&L in Asia belongs to three stocks', highlighting the concentration of market gains and the risks this could pose to investors. The concentration is particularly driven by chip stocks, reflecting the broader global focus on artificial intelligence (AI) and data centres, but recent developments suggest this momentum may be weakening. South Korea's KOSPI declined 19.3% in the third quarter, making it one of the weakest performers globally, while the Philadelphia Semiconductor Index fell 11.4% during the same period.
India's equity market is currently 'vulnerable' amid global uncertainty, according to Weidinger's assessment. Despite headwinds, India's PE remains strong, pointing to the market's underlying investment appeal even as global capital flows and sectoral momentum remain concentrated. The Nifty 50 is currently trading at a price-to-earnings (PE) multiple of 19.6 times, while the Sensex trades at 19.7 times, which remains below some of the elevated levels seen in previous periods. India's market position becomes particularly relevant as investors seek diversification from the concentrated Asian markets. India's Sensex fell 5.8% in September as investors took profits following several years of exceptional performance and increasingly questioned elevated valuations. The India ETF declined 14.9% year-to-date, marking a significant reversal from its strong performance in recent years.
Foreign institutional investors (FIIs) have remained major net sellers of Indian equities in 2026, while domestic institutional investors (DIIs) have continued to absorb the selling pressure. According to NDTV Profit, FIIs have net sold shares worth ₹49,934.93 crore through October 15, while DIIs have net bought equities worth ₹51,829.41 crore during the same period. For the year to date, FIIs have offloaded Indian equities worth ₹4,07,601.50 crore, while DIIs have invested a net ₹7,06,728.39 crore, highlighting the scale of domestic institutional support amid sustained foreign outflows. The India ETF has generated a remarkable return of 78.3% year-to-date, making it the strongest-performing major benchmark globally, though this performance was largely concentrated in semiconductor and AI-related assets.
The most concerning developments for Asian semiconductor stocks stem from the shaky finances of speculative AI plays like CoreWeave, which started as a crypto venture and now faces significant challenges in raising future funds. Some of these loss-making companies may even collapse, creating ripple effects across the sector. However, chipmakers are backed by very real profits that continue to set records, providing a solid underpinning for semiconductor stocks despite this week's market savaging. This divergence between speculative AI plays and profitable chipmakers highlights the importance of fundamental business models in the current market environment. Taiwan followed closely with a gain of 65.5% year-to-date, reflecting its pivotal role within the global AI supply chain, while South Korea advanced 62.3%, driven primarily by the recovery in memory chip manufacturers and broader technology exports.
The AI and data-centre trade is dominating markets across the globe, with chip stocks leading momentum in Asian equities. However, the concentration of returns in a small number of stocks raises questions about the sustainability and breadth of the rally. According to Lipper Alpha Insight, Asia remained the clear regional leader with Equity Asia Pacific gaining 35.4%, while Equity Asia Pacific ex-Japan advanced 25.5%, reflecting the powerful performance of technology-heavy markets such as Taiwan and Korea. Weiderger also flagged a potential overhang for Indonesian equities following an MSCI decision, suggesting that developments around index-related assessments could weigh on investor sentiment. The Philadelphia Semiconductor Index generated a remarkable return of 78.3% year-to-date, making it the strongest-performing major benchmark globally, while the NASDAQ Composite Index advanced 15.6% and the S&P 500 gained 11.8%, suggesting that returns have become increasingly concentrated within a relatively small group of technology leaders.
