HSBC cuts ‘overweight’ call on EM equities on AI spending fears

HSBC cut its “overweight” stance on emerging market equities on Wednesday, citing increased volatility in Asia and warning that renewed concerns over weak AI spending could weigh disproportionately on EM Asian markets.

EM Asian equities have been volatile recently, with big technology stocks coming under pressure as investors grow increasingly cautious about debt-backed AI spending and the sustainability of returns from those investments.

MSCI’s broadest index of EM Asian equities, largely led by South Korean equities, fell more than 2% on Wednesday, while flare-ups in Middle-East tensions also weighed.

South Korea’s benchmark KOSPI stock index closed 5.35% lower on the day, down more than 20% from a record close in late June and signaling the market is in bear territory.

The latest spate of fears came on Tuesday when investors sold off Samsung Electronics despite the company forecasting a 19-fold jump in second-quarter operating profit, amid concerns about the sustainability of the AI-driven boom.

“At least for the next few weeks, any signs of AI overspending and reductions in AI capex could hurt mid-cap stocks and therefore disproportionately affect EM equities,” HSBC strategists said, as they dropped their bullish outlook on the asset class.

Meanwhile, HSBC upgraded eurozone equities to “overweight”, saying lower consensus growth expectations and a weaker euro should support the region’s stocks over the summer months.