Key facts
- HSBC downgraded emerging market equities to neutral from overweight.
- The downgrade is attributed to concerns over AI spending and increased volatility in Asian markets.
- The MSCI index for EM Asian equities declined over 2% on Wednesday.
- South Korea's KOSPI index fell 5.35%, entering bear market territory.
- HSBC upgraded eurozone equities to overweight.
HSBC has shifted its stance on emerging market equities, downgrading the asset class to neutral from an overweight position due to rising volatility, particularly in Asia. The bank's strategists expressed concerns that a potential slowdown in artificial intelligence (AI) spending could disproportionately impact technology stocks in emerging Asian markets. This caution comes as the MSCI index tracking EM Asian equities experienced a decline of over 2% on Wednesday. South Korea's benchmark KOSPI stock index was significantly affected, closing 5.35% lower and marking a more than 20% drop from its late June record close, signaling a bear market. Investors recently sold shares of Samsung Electronics, despite the company forecasting a substantial increase in its second-quarter operating profit, reflecting anxieties about the sustainability of the AI-driven boom. HSBC strategists noted that any indication of reduced AI capital expenditure could negatively affect semiconductor stocks, thereby impacting emerging market equities. In contrast, HSBC upgraded its outlook for eurozone equities to overweight, anticipating that lower consensus growth expectations and a weaker euro will support the region's stock performance through the summer.