At present, only one name is buzzing in the global financial markets – Artificial Intelligence (AI). But a big reversal is being seen in the race of this emerging technology. The biggest companies of India, China and Hong Kong have suffered huge losses due to lagging behind the global giants on the Artificial Intelligence (AI) front. According to a recent report, the top companies of these Asian countries have lost a major part of their share in the global market cap. According to Bloomberg report, while American tech companies are making new records every day riding on the chariot of AI boom, Asian markets seem to be lagging in this race.
Share of top companies decreased
According to Bloomberg data, in both China and India, the share of the ten largest companies in total market capitalization is now about 19 percent, up from 26 percent and 22 percent respectively a year ago. Hong Kong’s market remains the least ‘top-heavy’ (dependent on big companies), where the concentration of big companies has declined from 10 percent to 9.8 percent.
It is no coincidence that the benchmarks in these markets have performed poorly, especially compared to Taiwan and South Korea, where a few AI star companies have lifted the entire benchmark. Data shows that diversity can be a strength, but when a fast-growing sector like AI is under-represented, it can also leave the market behind.
Charu Chanana, chief investment strategist at Saxo Markets in Singapore, said in a Bloomberg report that the story of concentration in Asia is divided. In the tech-heavy market, winning companies from the AI and memory sectors are increasing the index concentration. But concentration is decreasing in India, China and Hong Kong because there is no single major AI winner company there.
Korea and Taiwan
There has been tremendous growth in markets dominated by a few players deeply involved in the AI supply chain. Taiwan’s benchmark index, which is mainly driven by the growth of chip-making giant Taiwan Semiconductor Manufacturing Company (TSMC), has gained 54 per cent this year. At the same time, Korea’s Kospi index, which is based on high-bandwidth memory manufacturing major SK Hynix Inc. And Samsung Electronics Co. Has got a boost from, has almost doubled.
The influence of these companies on their markets – which was significant even before AI emerged as a major supplier – is now growing. In South Korea, the market share of the top 10 companies is now about 65 percent, almost double from a year ago. In Taiwan, where a few big companies already had the most dominance on the market, the share of the top 10 companies has increased to 56 percent from 49 percent a year ago.
India’s diversified setup
Only a few markets in Asia are far behind in the AI race. In which India’s name can be taken quite prominently. The Nifty 50 benchmark, which is down about 8 percent this year, is dominated by old big companies like Reliance Industries and HDFC Bank. Even its leading tech companies, such as Tata Consultancy Services and Infosys Ltd., are based on soft services, which are now being threatened by AI disruption.
Chanana said that the companies with higher weightage are no longer driving the index that strongly, while the next generation companies have not yet created any new ‘engine’ (source of growth). Siddharth Vora, fund manager and head of asset management at PL Capital, said that on the other hand, this diversification can also provide stability, if investors feel that the period of spending on AI has increased excessively and global investors turn to such markets where there are strong earnings in many sectors. He further said that India will not remain untouched if there is a big correction in the market, but low concentration, domestic liquidity and broad base of earnings can strengthen it to some extent.
China’s situation
In China, where officials and internet giants are promising to increase investment in AI, the situation is a bit more complicated. China’s biggest companies are those that have many different sources of income. But like other Asian markets, some of the best performing stocks in China this year have been those that are directly positioned to take advantage of the booming AI era, including intelligent processor maker Cambricon Technologies Corp, semiconductor foundry SMIC and optical fiber maker Yangtze Optical Fiber & Cable Joint Stock Ltd.
Fabian Yip, market analyst at online brokerage IG International, said that investors have therefore turned their attention towards companies that have a clear connection to AI. The inclination of investors is also changing, which can be a good thing. Apart from the old internet giants, money is also being invested in shares of banks, insurance companies, government companies paying high dividends, hardware manufacturing companies and AI related companies.
Chanana said that it is because of this broad participation that China has given positive returns, even though the market-cap share of its top ten companies has decreased. The CSI 300 index has increased by about 5 percent this year. He further said that this de-concentration (reduction of monopoly) is not the same everywhere.
