AI Equity Slump Drives Capital Rotation into China and India
An abrupt pullback in global artificial intelligence hardware equities following United States political shifts is prompting fund managers to recalibrate their Asian investment strategies. Global institutional allocators are redirecting capital into previously neglected Chinese and Indian equities while targeting sectors positioned to benefit from softening inflation. According to reporting from Bloomberg, institutional manager Aberdeen Investments favors markets supported by robust domestic expansion, including India and Vietnam, while anticipating upside across Chinese technology enterprises. Specialized hedge fund Lotus Asset Management established long positions in Hong Kongequity futures, while Allianz Global Investors began allocating toward consumer and healthcare enterprises. Asian equity benchmarks were among the hardest hit because major regional chipmakers serve as critical suppliers to global AI infrastructure build-outs.
Rebound in Chinese Equities and Valuation Arbitrage
Investors increasingly question whether massive corporate capital expenditures on specialized computing infrastructure will generate commensurate revenue returns in coming quarters. Rajeev De Mello of Gama Asset Management stated that institutional allocators are actively broadening portfolio diversification to reduce excessive concentration in crowded AI trades. He noted that this strategic rebalancing provides tangible valuation support to Chinese equity markets where price multiples remain historically depressed. Hao Hong of Lotus Asset Management reported adopting short positions against petrochemical producers while taking long positions in precious metals and Hong Kong equity contracts. Reflecting the shift, a benchmark Hong Kong gauge tracking mainland Chinese enterprises climbed 5.2 percent (5.2%) last week, marking its strongest performance since March 2025. The forward price-to-earnings ratio of the Hang Seng Tech Index contracted to approximately 13 times, representing its lowest valuation multiple since 2024, according to Futu News. Three-month implied volatility on the Hang Seng Tech Index dropped to its lowest level since July to lower hedging costs, while options trading volume on the iShares China ETF climbed to a one-year high, according to Futu News.
Foreign Capital Surges into Indian Equities and Diversified Asian Sectors
Simultaneously, India's investment appeal expanded as global crude oil prices eased amid diplomatic expectations of an earlier conclusion to Middle Eastern hostilities. Declining petroleum import costs relieve substantial fiscal pressure on India's energy-dependent economy, turning its relatively low domestic AI exposure into an unexpected strategic asset. India's benchmark Nifty 50 index surged 8.6 percent (8.6%) last week to register its strongest weekly percentage advance since 2021. Foreign institutional funds poured a net 1.9 billion dollars into domestic Indian equities through Wednesday as cross-border inflows accelerated. Charlie Hong of LOGOS Asset Management reported divesting holdings in semiconductor suppliers to increase allocations toward Indian financial institutions, software firms, and contract pharmaceutical manufacturers.
Market participants noted that brokerage trading desks in Mumbai experienced heavy inquiry volumes from international clients based in Singapore beginning early in the morning. Prior to this capital reallocation, benchmark equity indices across India and China had ranked among the world's weakest-performing stock markets through October. Beyond the two regional giants, fund managers are identifying value opportunities in South Korean consumer staples, cosmetics manufacturers, and entertainment agencies. Portfolio strategists at Rayliant Global Advisors observed that non-semiconductor industrial firms such as home appliance makers may benefit as international trade tensions ease. The cross-market capital rotation highlights how global fund managers are decoupling from semiconductor concentration to capture value across resilient Asian domestic consumer economies.
Background
As of October 30, 2026, the Hang Seng Tech Index traded at around 18.7 times forward earnings, remaining substantially below its 10-year historical average of 28.8 times, according to FSMOne.