Whalesbook
Investor Focus Shifts to East Asia Driven by AI
Global investors are increasingly channeling funds away from India and towards Taiwan and South Korea, a trend primarily driven by strong demand linked to the artificial intelligence (AI) supply chain. Herald Van Der Linde, Head of Asia Equity Strategy at HSBC, noted that while India saw some foreign investor interest late last year, the attention has shifted back to East Asian markets benefiting from AI momentum. Companies in Taiwan and South Korea, such as TSMC, SK Hynix, and Samsung Electronics, are experiencing substantial order flows from U.S. data center construction, leading to significant earnings upgrades. These markets have seen earnings growth in the range of 30-50%.
India's Market Dynamics and Key Risks
Despite India's economic resilience, marked by robust GDP growth and moderating inflation, foreign portfolio investors (FPIs) have recorded significant net outflows in 2025, amounting to approximately USD 17.5 billion, largely due to weak earnings momentum and a preference for AI-heavy markets. While market strategists anticipate a potential FPI comeback in 2026, the preference for AI-exposed countries may persist. HSBC has identified several key risks for Indian equities, including currency volatility, the sustainability of earnings recovery, and long-term margin pressure due to increasing competition. Although India's valuations have moderated, investors remain cautious.
Gold's Enduring Appeal and Budget Expectations
Amidst global economic uncertainties, central banks worldwide continue to demonstrate strong demand for gold as a strategic reserve asset and a hedge against geopolitical risks and currency devaluation. Poland, Brazil, and China are noted for their significant gold purchases in recent periods, with India's Reserve Bank also adding to its reserves. The upcoming Indian Union Budget 2026, scheduled for February 1, 2026, is expected to focus on maintaining economic stability, supporting manufacturing and MSMEs, and potentially offering income tax relief, while continuing capital expenditure on infrastructure.
Sector Preferences and Market Performance Comparison
HSBC, while holding a neutral stance on Indian equities due to current valuations, prefers domestically-focused sectors such as banks, auto companies, jewellery, retail, and hospitals. For foreign investors concerned about currency risk, IT stocks are suggested as a hedge. In contrast to India's lagged performance in 2025, Taiwan and South Korea's stock markets saw significant rallies, with the KOSPI in South Korea up over 70% and Taiwan's market hitting records, largely driven by the AI semiconductor cycle. TSMC's revenue growth in 2026 is projected to be around 30% in U.S. dollar terms, driven by AI demand.