British financial giant HSBC on the 8th withdrew its bullish investment stance on emerging market stocks. The bank pointed to persistently volatile price action centered on Asian markets, against a backdrop of resurgent concerns over overheating in artificial intelligence (AI) investment. It warned that, at least over the coming weeks, any signs of cuts to AI-related capital expenditure risk dealing an outsized blow to emerging markets through semiconductor stocks.
HSBC strategists said in a statement that “the perception of overinvestment in AI, or any signs that AI capex is being scaled back, could hit semiconductor stocks and, as a result, disproportionately impact emerging market equities,” formally rescinding their previous bullish posture.
In emerging Asian markets, investor caution is rapidly mounting over the sustainability of debt-fueled AI investment and the certainty of the revenues it will generate. The MSCI Emerging Markets Asia Index fell more than 2% on the 8th, with the decline in South Korea’s market particularly dragging down the overall gauge.
South Korea’s benchmark KOSPI index plummeted 5.35% in trading on the 8th, bringing its decline from the record high set in late June to more than 20%. This is the level generally considered a “bear market,” starkly illustrating the rapid chill in market sentiment.
The turmoil was epitomized by the fact that South Korea’s Samsung Electronics (005930.KS) was met with a wave of selling by investors on the 7th, even after the company released a strong earnings forecast projecting its operating profit for the second quarter of 2026 would surge roughly 19-fold year-on-year. The market is beginning to question the very sustainability of the AI boom, with uncertainty over the outlook taking precedence over strong earnings performance.
Rising tensions in the Middle East are also weighing on the broader emerging market complex. Heightened geopolitical risk is further cooling investor sentiment already rattled by fears of a slowdown in AI investment.
Meanwhile, HSBC upgraded its investment rating on eurozone stocks to “overweight.” The bank expressed the view that broadly declining market growth expectations and the euro’s ongoing depreciation will underpin share prices within the region heading into the summer. The move suggests a potential shift in capital flows from emerging markets to the eurozone, with signs of change beginning to emerge in global fund movements.
HSBC’s change in stance suggests that a potential turning point may have arrived for the emerging market rally scenario that had been driven by AI. The market’s scrutiny of the reality of AI investment and the pace of its monetization is becoming increasingly severe.