Mon, Jan 05, 2026 page9

• AI bubble fears, policy splits loom over Asia stocks

  INVESTMENT FRENZY: Japan is under pressure to raise rates, India is sustaining its low rate, and further easing in Thailand, Malaysia and China could boost stocks

  • Bloomberg
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  Asian equities started the new year with sharp gains, but the advance might face headwinds from worries over an artificial-intelligence (AI) bubble and diverging interest rate paths across the region.

  The investment frenzy over AI played a key role in driving Asian stocks’ outperformance versus their global peers last year. That excitement spilled over into the new year, pushing a regional information tech gauge to a record on Friday.

  While some see Asia a better venue for AI exposure given cheaper valuations, others point to the more pronounced risk of concentration of a few major tech firms in markets such as Taiwan and South Korea. Volatility might increase as the rally extends.

  

  Traditional dancers perform beneath inflatable figures during a ceremony celebrating the new year’s opening of the South Korea stock market at the Korea Exchange in Seoul on Friday last week.

  Photo: AFP

  “We’re calling more of an AI fatigue as opposed to a bubble,” Eastspring Investments (Hong Kong) Ltd equity portfolio specialist Ken Wong (黃嘉權) said.

  If there is a pullback in overall AI capital expenditure or earnings trajectory starts to deteriorate, there would be some risks, he said.

  While there is caution against Wall Street’s AI exuberance, optimism is building about Chinese chipmakers as the nation doubles down on technological self-sufficiency.

  Beijing is weighing a package of incentives worth as much as US$70 billion to support its semiconductor industry.

  Investors’ enthusiasm was evident in the blockbuster trading debuts of MetaX Integrated Circuits Shanghai Co (沐曦) and Moore Threads Technology Co (摩爾線程). The strong demand has prompted their peers to rush to raise funds in the stock market, with Baidu Inc’s (百度) AI chip unit and GigaDevice Semiconductor Inc (兆易) among those in the pipeline.

  Policy divergence would be another key driver for Asian stocks this year. The policy outlook of the US Federal Reserve, which is expected to cut rates twice this year, would continue to determine capital flows and risk sentiment across Asia. Its monetary easing would open up space for central banks in countries from India to Thailand to lower borrowing costs to spur economic growth.

  In contrast, the Bank of Japan is under pressure to raise rates more aggressively to curb inflation and excessive yen weakness.

  Similarly, New Zealand’s central bank has signaled it had likely finished cutting rates, while expectations are also growing for its Australian counterpart to pivot to policy tightening.

  “India’s sustained low-rate environment may provide gentle tailwinds for its equity market, while further easing in Thailand, Malaysia and potentially China could boost stocks,” Pepperstone Group research strategist Dilin Wu (吳迪琳) said.

  Meanwhile, as some investors diversify away from US assets and the crowded AI trade, they are positioning for a revival of the laggards.

  India’s NSE Nifty 50 Index finished last year up 10.5 percent, trailing the MSCI AC Asia-Pacific Index by the widest margin since 1998. Investors expect lower consumption tax rates and interest rate cuts to help improve earnings and drive a trend reversal.

  Some also bet that Indonesia could benefit further from the government’s stimulus push. Southeast Asia overall lagged the broader region last year.

  “India and ASEAN are interesting for being very non-AI, while some of these markets have underperformed, so there might be value,” Aberdeen Investments fund manager Ng Xin-yao (黃新耀) said. “A good pick will be one with resilient cash flow that’s less dependent on macro/politics, while paying high dividend.”

  The spotlight would also be on South Korea, where stocks staged a 76 percent world-beating rally last year, powered by the AI boom as well as optimism about corporate and market reforms.

  The benchmark KOSPI on Friday gained another 2.3 percent to close above 4,300, marching toward the 5,000 level targeted by South Korean President Lee Jae-myung.

  AI tailwinds remain strong for the country’s chip heavyweights, and that momentum was reinforced by South Korean government data showing a 43 percent jump in semiconductor exports last month, underscoring Samsung Electronics Co’s and SK Hynix Inc’s pivotal role in the global AI boom.

  The next leg of the bull run would also hinge on government efforts to further improve corporate governance, as well as steps to boost small-cap stocks.
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