After a strong year for Asian equity markets, top rated regional fund managers are looking beyond the obvious beneficiaries of artificial intelligence (AI).
This is according to a report from Morningstar which found that some fund managers expect a moderation in AI capital expenditure – potentially leading to a correction in Asian beneficiaries.
Taiwanese chipmakers and Korean memory suppliers, among the major Asian index heavyweights, drove strong regional performance last year on the back of continued AI spending.
Despite this rally, leading regional equity managers are shifting their focus to the second-order beneficiaries of artificial intelligence, says Germaine Share (main picture), director, manager research at Morningstar.
“Ongoing optimism surrounding AI drove Asian equity markets last year, though some fund managers caution against the AI industry’s capital expenditure sustainability and elevated valuations.”
“Instead, they preferred AI-adjacent plays that could benefit from improved profitability through AI adoption, which can span across a wide range of industries, such as Indian banks, Chinese internet companies, or even Asean-based data centres, redefining how the AI theme can be played.”
The report found that Louisa Lo, who runs the top-rated Schroder ISF Emerging Asia fund, has avoided “overly crowded areas like AI-related hardware companies” and instead favours internet names like Alibaba which could benefit from AI advancements.
Elsewhere, Martin Lau, lead manager of FSSA Asian Equity Plus, instead sees Indian banks as potential beneficiaries of AI. The fund manager has been adding to a position in Kotak Mahindra Bank despite a weaker backdrop for Indian equities.
According to the report, the manager has cited a recovery in savings account growth and a deployment of “AI-driven automation to reduce costs, which drove a fall in its cost/income ratio”.
In the Asean region, Pauline Ng, lead manager of the JPM Asean fund, is constructive on investment prospects that could benefit from the AI theme, such as IT service providers in Vietnam and beneficiaries of data center buildouts in Malaysia.
Finally, while Korea has benefitted from the performance of index heavyweights SK Hynix and Samsung, some fund managers are cautious on its market concentration in the two firms.
The report said that managers of the Schroder ISF Asian Total Return fund are concerned that the companies’ bullish outlooks for 2026 are already priced in and warned it could reflect overordering.
Elsewhere, other fund managers are more bullish on Korea’s value-up story and corporate governance reform instead.
JPMorgan Asia Equity Dividend managers Julie Ho and Ruben Lienhard have favoured banks like Shinhan Financial Group and Hana Financial Group.
According to the report, the fund had more than double its allocation to banks versus the benchmark MSCI AC Asia Pacific ex Japan High Dividend Yield Index.
