July 8 - HSBC has withdrawn its "overweight" stance on emerging-market (EM) equities, saying recent turbulence in Asian markets and growing investor worry about the sustainability of AI-related spending elevate downside risk for EM Asian stocks.
The bank pointed specifically to increased volatility across EM Asia, where large technology companies have come under pressure as investors express caution about debt-fueled AI investments and whether returns will justify that spending. HSBC strategists warned that any evident pullback in AI capital expenditure could disproportionately affect semiconductor names and, by extension, EM equities.
Market moves on Wednesday illustrated those concerns. The MSCI index that tracks EM Asian equities fell by more than 2% on the day, with selling broad-based but particularly driven by South Korean stocks. South Korea's benchmark KOSPI closed down 5.35% on Wednesday, a decline that puts the market more than 20% below its record close in late June and signals that it has entered bear-market territory.
Investors' nervousness intensified on Tuesday when selling pressure hit Samsung Electronics, even after the company forecast a 19-fold increase in second-quarter operating profit. HSBC's strategists said the episode underscored how fragile investor sentiment can be amid debates over the durability of the AI-driven cycle.
"At least for the next few weeks, the narrative of AI over-spending and any signs of AI capex being cut can hurt semi stocks and therefore disproportionately affect EM equities," the strategists said as they removed their bullish view on the asset class.
HSBC also noted other geopolitical and macro forces weighing on EM performance, including a flare-up in Middle East tensions that added to risk sentiment during the trading week.
In contrast to its decision on EM equities, HSBC upgraded eurozone equities to an "overweight" position. The bank said lower consensus growth expectations for the region and a softer euro should provide relative support to eurozone stocks through the summer months.
Market snapshot included in coverage:
- MSCI EM Asia index: down more than 2% on Wednesday
- KOSPI: closed 5.35% lower on the day and more than 20% below its late-June record close
- Samsung Electronics (005930): experienced selling despite a forecast of a 19-fold jump in Q2 operating profit