The Asian AI boom cools down, and foreign capital withdraws from the Japanese and South Korean stock markets at the fastest pace in seven months
The Asian AI market has seen foreign capital withdraw from the Japanese and South Korean stock markets at the fastest pace in seven months due to high valuations and weakened risk appetite. Foreign capital has withdrawn nearly $4.6 billion from the South Korean stock market this month, while the Japanese stock market has seen a net sell-off of $2.3 billion. Market enthusiasm for AI concepts has waned, and concerns about the disconnect between valuations and earnings expectations have intensified. Anna Wu, a strategist at Van Eck, believes that short-term adjustments are healthy
The AI-driven Asian stock market feast is facing a reality check, as global investors are withdrawing funds from the region's major AI markets at the fastest pace in at least seven months due to concerns over high valuations and weakened risk appetite.
According to data compiled by the media, foreign investors have pulled nearly $4.6 billion from the South Korean stock market so far this month, likely marking the largest monthly outflow since April of this year, making it one of the most severely sold-off markets in the region. According to data from the Japan Exchange Group, as of November 7, foreign investors net sold $2.3 billion worth of Japanese domestic stocks, marking the first net sell-off in six weeks.
This capital withdrawal is the latest sign that enthusiasm for the astonishing surge of Asian AI concepts is waning. Concerns over overvaluation and the disconnect between earnings expectations and reality are intensifying, while hopes for a Federal Reserve rate cut in December are also dampening global risk appetite.
Anna Wu, cross-asset strategist at Van Eck Associates Corp., stated that "despite the long-term fundamentals of the global AI story remaining unchanged, a combination of recent factors has triggered a 'profit-taking and short-term sentiment pullback,' which she believes is a 'healthy' short-term adjustment."
Valuation Concerns Intensify, Investors Reassess AI Frenzy
In recent months, investors have bet on Asia's so-called "picks and shovels stocks"—the chip and hardware suppliers powering the global AI race—believing they would be insulated from market volatility due to sustained spending from tech giants supporting them. These suppliers are primarily concentrated in the Asian region.
Now, as investors double down on whether the AI frenzy has exceeded reasonable levels, the situation is beginning to change. A recent series of "circular trades" (where buyers and sellers engage in reciprocal business dealings) has also raised concerns about inflated revenues and valuations. Some of these worries have already impacted global markets last week, with the South Korean Composite Stock Price Index (Kospi Index) retreating from its peak in early November after soaring 84% since April.
This pessimism is also affecting the neighboring Japanese market. According to data from the Japan Exchange Group, as of November 7, foreign investors net sold $2.3 billion worth of Japanese domestic stocks, marking the first net sell-off in six weeks. Including the futures market, this total would rise to $7.3 billion.
The Taiwan Weighted Stock Index has also given back some of its gains this month.
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