Whalesbook
Foreign investors are channeling money into markets directly linked to the artificial intelligence (AI) theme, such as China, South Korea, and Taiwan, according to Cameron Brandt of EPFR Global. This trend has led to India being bypassed, with recent data showing no revival in foreign institutional investor flows. Brandt suggests India could regain focus if the AI trade falters or when AI applications mature beyond infrastructure, potentially positioning India as a defensive play or a beneficiary of scaled business processes.
Cameron Brandt, Director of Research at EPFR Global, noted that foreign investors are currently prioritizing markets perceived as early beneficiaries of the artificial intelligence (AI) boom. Funds are primarily flowing into China, South Korea, and Taiwan, which are considered "core AI plays." This strategic shift means India has been "somewhat bypassed," contrary to expectations of renewed foreign institutional investor interest.
Investors are making what Brandt described as an "arbitrary distinction," directing capital towards AI-centric economies. Meanwhile, countries like Brazil and Chile are attracting interest for their resource potential in copper and lithium. While global emerging market funds are seeing a slow return of flows, indicating a potential broader sentiment shift, significant investment decisions are anticipated early next year. Developed markets continue to receive more capital, with investors adding hedges.
India could re-emerge on the investment radar under two key scenarios. The first is if the current AI investment trend "implodes completely," prompting investors to seek safer emerging markets where India might serve as a "preeminent defensive play." The second scenario involves the AI industry evolving beyond its current foundational phase (the "picks and shovels" phase of building infrastructure). If AI becomes integrated into everyday business operations, India's proven strength in scaling established business processes, particularly in sectors like back-office services, could make it a significant beneficiary. Brandt believes this latter scenario is likely a story for next year.
Impact
This news directly affects investor sentiment towards emerging markets, particularly India. The current redirection of foreign capital away from India towards AI-focused regions suggests a potential near-term dampening of foreign institutional investment (FII) flows into the Indian stock market. However, the expert's outlook on potential future scenarios provides a neutral to slightly optimistic long-term perspective, depending on global AI development and market conditions. The potential for India to become a defensive play or benefit from AI's mature stage offers speculative upside.
Rating: 6/10
Difficult terms:
Arbitrary distinction: A separation or classification made without a clear or logical reason, based more on perceived trends than solid fundamentals.
Core AI plays: Markets or companies considered central to the growth and development of artificial intelligence, expected to directly benefit from its expansion.
Resource plays: Investment strategies focused on countries or companies that hold significant natural resources, such as metals or minerals essential for various industries.
Picks and shovels phase: In technology or market booms, this refers to the stage where investment focuses on the foundational infrastructure, tools, and hardware needed to support the new technology, rather than the end-user applications or services.
Preeminent defensive play: An investment that is considered exceptionally safe and is expected to hold its value or perform well even during economic downturns or market instability.
