Key facts
- Risk managers warn Asian equity markets may face greater counterparty risk than the US in an AI selloff.
- Factors contributing to this risk include growing leverage, retail investor herding, and concentrated stock indexes.
- The "ground zero" for a market correction is predicted to be in Asia.
Risk managers are cautioning that Asian equity markets could be more exposed than their US counterparts in a scenario where sentiment turns against artificial intelligence. They point to a confluence of factors, including increasing leverage, the tendency for retail investors to follow herd behavior, and the concentration of stocks within key indexes, as contributing to this elevated risk.
One market risk executive based in the Asia-Pacific region stated that "the writing is on the wall – when this market corrects, ground zero is going to be right here in Asia." This suggests a belief that any downturn related to AI sentiment could disproportionately impact Asian markets.