Juliet Schooling Latter, research director at FundCalibre, explores how the AI boom is reshaping Asian equity markets, forcing active managers to balance the attractions of dominant semiconductor giants with opportunities emerging elsewhere in the region.
The concentration problem in the US is well-understood. Investors are increasingly herding into a tighter range of AI-related companies. If it is true in the deep and diverse capital markets of the US, it is an even greater problem in Asia.
A handful of semiconductor and memory companies have come to dominate Asian indices, creating a dilemma for active managers.
In the MSCI Asia ex Japan index, TSMC is now a 17% position, while Samsung and SK Hynix are 7.7% and 6.5% respectively*. Taiwan and South Korea now form over 50% of the overall weight of the index.
Once-dominant China has been relegated to 21% of the index, while India is now just 12.4%. Technology is over 50% of the index, with the next largest sector (financials) just 16%**.
The problem is that these are still good companies, with an astonishing pipeline of growth. Demand for data centres and computing power to support the growth of AI continues unabated.
Goldman Sachs estimates that AI spending will be $765 billion in 2026, and another $1,011 billion in 2027 spread across data centres, compute and power generation***.
Also, deciding the point to leave is tricky. While there have been wobbles in the share price growth of these companies, their revenues are still growing strongly. Selling early risks material underperformance.
The majority of Asia ex Japan managers continue to hold these three large companies as their main holdings. The only question is the proportion in which they are held.
It is increasingly clear that some of these companies recognise the problem and are taking steps to diversify their business. Sean Taylor, manager of the Matthews Pacific Tiger fund, says: “These companies are shoring up their moats by expanding beyond core processors into other critical AI components including high-end multi-layer ceramic capacitors, printed circuit boards and specialist chips like application-specific integrated circuits.” It is still AI, but at least it is diversified.
But fund managers still need to tread carefully. The ongoing dominance of some of these suppliers is not assured. The memory supply deficit has eased and Chinese producers are starting to become more competitive. Equally, it is clear from the recent volatility that there is ‘hot’ money in these trades. The Korea KOSPI in particular has become a byword for market volatility.
The other problem is that these trades could crowd out other exciting narratives in the region. Taylor points out that Asian companies are benefiting from the ongoing re-industrialisation narrative as developed economies continue to invest in defence capabilities, modernise their domestic industries and update their power infrastructure.
“This theme was notably beneficial for advanced manufacturing segments in South Korea and Japan. The third driver, which gained momentum in late 2025, was strength in commodities markets, supported by increasing global demand for electrification, power, renewable energy and AI infrastructure.”
He expects the global re-industrialisation theme to continue, supported by a new era of geopolitics in which governments are placing a high priority on defence and the sustainability of their domestic economies. “We also see expansion in AI, power and renewable energy infrastructure staying strong”.
This is also a theme for Andrew Swan, manager of the Man Asia (ex Japan) Equity fund. He says: “The region has navigated the energy shock of the Middle East conflict well, with a variety of actions (reduction in imports by leveraging reserves and inventories, policy measures), but we expect progressing deescalation and subsequent normalising of oil prices to support the markets – particularly in India and the Philippines.”
He has recently bought the Taiwanese manufacturer of printed circuit boards and IC carriers, Unimicron. “Our research shows that the ABF substrate industry, where Unimicron is a leading supplier, is turning into a supply constraint on the back of rapid increase in AI investments.”
He has also added Samsung C&T, the holding company of the Samsung Group, which focuses on construction****. “In our view, the stock will benefit from spillover investments in Samsung Electronics, along with global energy infrastructure investment.”
Investors may also be neglecting the opportunities emerging from China. At the recent World Artificial Intelligence Conference in Shanghai, China showed it was narrowing the gap with the US on AI development.
In his speech, President Xi emphasised the importance of “encouraging open-source development.” This may have more appeal to international buyers than the US’s ‘closed’ model, which can be shut off at a moment’s notice. Open-source AI effectively belongs to those who buy it, and it can be adapted to their specific needs.
Sandy Pei, senior portfolio manager at Hermes, says: “China is at the forefront of the global artificial intelligence boom.
Taiwan and South Korea are leaders in logic chips and memory, but the bulk of AI data centre-related infrastructure is manufactured in China, including the racks, power supply, energy storage, cooling systems and optical networking.
“While global capital has chased AI hardware in Taipei and Seoul, China’s domestic value plays have been largely left out of the party. Investors need to distinguish between areas where scepticism is justified and those where it has gone too far.”
Asian markets have become increasingly concentrated and there are signs of hot and leveraged money entering the sector.
Nevertheless, many Asia-focused fund managers continue to support the semiconductor sector, albeit at lower weights than in the index. But most are also exploring alternative opportunities emerging in the region, from AI in China, to Asian beneficiaries of global re-industrialisation.
*Source: Barings, 28 July 2026
**Source: index factsheet, 30 June 2026
***Source: Goldman Sachs, 1 May 2026
****Source: fund commentary, 30 June 2026
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
Main image: Asia, India, map, globe, kyle-glenn-nXt5HtLmlgE-unsplash
