Foreign investors are withdrawing billions from Asia’s top-performing AI-linked stock markets, marking the sharpest retreat in over seven months.

A Bloomberg exclusive reports that Taiwan, South Korea, Japan, and China have all seen selloffs in recent weeks as rising valuations, shifting global monetary expectations, and structural concerns push capital elsewhere.

Although the AI investment story remains intact over the long term, current market dynamics are causing investors to reassess short-term exposure.

Once viewed as a stable entry point into global AI growth, Asia’s semiconductor and hardware-heavy indices are now under scrutiny.

Valuation spikes are making markets look overheated

Taiwan and South Korea have been at the heart of the AI equity boom.

Both countries house essential chipmakers and component suppliers that serve the global tech industry, making them prime targets for investors capitalising on AI infrastructure demand.

However, foreign investors have pulled nearly $4.6 billion from each market so far this month. Bloomberg suggests this is shaping up to be the biggest monthly exodus since March for Taiwan and April for South Korea.

The key reason is simple: valuations surged too far, too fast. South Korea’s Kospi Index gained 84% between April and early November, while Taiwan’s Taiex followed a similar pattern.

Now, investors are booking profits and stepping back as prices move out of line with fundamentals.

Monetary policy is shifting the global risk appetite

Another layer of pressure is emerging from the macroeconomic environment. Investor optimism around a potential US Federal Reserve rate cut in December helped support risk-heavy assets earlier in the year. That scenario has changed.

With rate cuts looking less likely in the near term, appetite for risk has fallen globally. This is directly hitting high-growth sectors like artificial intelligence, especially where valuations are already stretched.

For Asia, which saw foreign capital flow in aggressively during the AI upswing, the reversal is significant.

Circular deals are raising questions on revenue integrity.

There are also rising concerns about how AI companies are recording their revenues, states Bloomberg. A noticeable uptick in circular transactions has appeared.

These are deals where companies engage in mutual transactions, often buying and selling services to one another.

Although technically legal, these arrangements can artificially inflate revenue figures, creating a misleading view of a company’s performance.

This has made some investors cautious, especially in a market environment where earnings are being closely matched against sky-high valuations.

Japan and China are also losing capital

The withdrawal is not limited to Taiwan and South Korea. Japan has also come under pressure. Foreign investors sold $2.3 billion worth of local equities in the first week of November, ending a six-week streak of inflows.

When factoring in futures trades, notes Bloomberg, the total reaches $7.3 billion, according to Japan Exchange Group data.

In China, although direct foreign fund data is not available, the market’s behaviour speaks volumes. The Hang Seng Tech Index, which tracks the region’s largest tech firms, has entered technical correction territory.

This typically signals a drop of 10% or more from a recent peak.

Disappointing performance updates from two of China’s leading AI players have worsened the outlook. Tencent Holdings lowered its capital expenditure forecast for 2025 following its latest earnings report.

Meanwhile, Baidu failed to impress investors with its newly revealed AI model. These updates have contributed to a broader reassessment of how much growth is realistically priced into Asia’s AI-linked firms.

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