Investors Pivot to China and India Equities as Global AI Rally Stalls Following US Midterms

Foreign investors poured a net $1.9 billion into Indian equities over just five trading sessions in early November 2026, marking a sharp reversal from the record $30 billion they pulled out in October. The sudden influx coincides with a brutal selloff in global artificial intelligence stocks following the U.S. midterm elections.[1][2]

The rotation has triggered an early Diwali celebration on Dalal Street, where domestic equity benchmarks delivered their biggest single-day gains in seven months. India's Nifty 50 index surged 8.6% last week, recording its strongest weekly advance since 2021.[1][3]

"The big blood bath in the US markets will impact most other markets today, but India is likely to be the least impacted," said VK Vijayakumar, chief investment strategist at Geojit Investments Limited. He noted that foreign institutional investors bought equities worth roughly Rs 35,781 crore over recent trading sessions.[3]

The pivot extends beyond India. A Hong Kong index tracking mainland Chinese companies gained 5.2% last week, marking its strongest performance since March 2025. Investors are increasingly seeking cheaper valuations and less concentrated technology exposure in the region.[1]

The AI Hangover

The sudden appetite for South Asian equities stands in stark contrast to the mood in semiconductor-heavy markets. Investors in Japan, South Korea, and Taiwan are scrambling to manage a severe selloff in technology stocks as doubts grow over whether massive AI infrastructure spending will deliver sufficient profits.[1][3]

South Korea's Kospi plunged more than 8% in early trade on Thursday, triggering a 20-minute trading halt. Japan's Nikkei 225 fell between 5% and 6%, while Taiwan's technology-heavy market also suffered steep declines as global fund managers reassessed their exposure.[3]

Major chipmakers have borne the brunt of the selling pressure. Shares of South Korea's Samsung Electronics and SK Hynix, alongside Taiwan Semiconductor Manufacturing Company, tumbled as the market rotated away from the hardware suppliers driving the global AI expansion.[1]

The selloff accelerated after the U.S. midterm elections, which introduced new uncertainties regarding technology regulation and trade policies. Investment managers are now actively reducing their concentration in the artificial intelligence trade, fearing that the sector's stretched valuations leave little room for error.[1][2]

Seeking Domestic Growth

With the AI trade losing momentum, capital is flowing toward sectors with earnings momentum rooted in domestic consumption. In India, foreign funds are targeting financial companies, contract drug manufacturers, and consumer-focused businesses that have zero revenue links to AI chip cycles.[1]

Goldman Sachs Research quantified the shift, noting that India outperformed the MSCI Asia-Pacific ex-Japan index by seven percentage points in October 2026. The bank attributed the move directly to a market rotation away from AI-sensitive North Asian markets.[1]

Within the Indian market, the divergence is stark. Stocks categorized as AI enablers underperformed the broader Nifty index by six percentage points last month, while traditional IT services companies outperformed the benchmark by 14 percentage points.[1]

That outperformance in IT services reflects a structural feature of the Indian market rather than a short-term fluke. Companies like Tech Mahindra have reported significant margin expansions, drawing capital from investors who prefer established service providers over speculative hardware manufacturers.[1]

"Higher energy prices, the AI trade, currency weakness and FII outflows until recently were the big overhang on the Indian market," Shahzad Madon, Managing Director and CEO of TCG AMC, told reporters. "Now that pressure is easing and the worst appears to be behind us."[1]

Overlooked Asian Sectors

The search for value is prompting investors to look beyond the region's two largest populations. Vietnam is attracting renewed attention for its domestic growth prospects, while Southeast Asian tech hubs are seeing capital flow toward software and expansion rather than raw computing power.[1][5]

In South Korea, portfolio managers are looking past the major chipmakers toward cosmetics, entertainment, retail, and food companies. These sectors offer revenues that are insulated from the volatility of global AI infrastructure spending and rely instead on steady consumer demand.[1]

Healthcare and consumer staples are also gaining traction across the continent. Analysts at Allianz Global Investors recently advised clients that while defense and financial stocks could underperform, consumer-focused firms are poised to benefit from the current market rotation.[1]

The shift is also visible in corporate restructuring across the region. As the AI investment cycle peaks, companies in Malaysia and other emerging markets are redirecting resources toward software development and talent acquisition, moving away from capital-intensive hardware projects.[5]

Macroeconomic Tailwinds

The pivot toward energy-importing nations like India has been further supported by a sharp decline in global crude oil prices. Brent crude fell nearly 9% in a single session last week, easing inflationary pressures and boosting investor confidence in South Asian economies.[3]

AI

The reduction in oil prices and U.S. Treasury yields has eased pressure on the Indian rupee, which recently climbed to its highest value in two weeks. This currency stability makes Indian equities significantly more attractive to foreign buyers who must eventually convert their returns back into dollars.[3]

Despite the broader optimism, some segments of the Indian market remain cautious. During the special Muhurat trading session on Sunday, the Sensex and Nifty closed marginally lower for the first time in nine years, reflecting lingering concerns over global market turbulence.[4]

Yet, the underlying economic fundamentals remain robust. The International Monetary Fund recently raised its growth forecast for India to 7% for the 2026-2027 fiscal year, citing solid domestic demand and a healthy services sector that continues to outpace global peers.[3]

A Structural Reallocation

The global capital reallocation appears structural rather than temporary, driven by a fundamental reassessment of technology valuations. The billions of dollars flowing into Mumbai and Hong Kong suggest that the next phase of Asian market growth will rely on traditional consumers.[1]

Market watchers are now waiting for the next round of corporate earnings to confirm whether this domestic consumption thesis holds. Until the numbers prove otherwise, foreign institutional investors seem content to park their capital far away from the volatility of the artificial intelligence boom.[1][3]

The speed of the reversal has caught some market participants off guard. Trading desks in Mumbai and Singapore reported fielding client calls well before dawn as international funds rushed to adjust their allocations before the Asian markets opened.[1]

The broader implications for Wall Street are equally significant. As rising financial stars and institutional leaders network and strategize for the coming year, the consensus is shifting away from the concentrated tech bets that defined the previous decade.[6]

This diversification strategy provides a buffer against potential regulatory crackdowns in the United States while capitalizing on the expanding middle class in emerging markets. The rotation underscores a return to fundamental investing principles, where steady cash flows outweigh speculative growth.[1][2]