Investors Shift Capital to India and China Amid AI Volatility

Global investors are rotating capital away from artificial intelligence equities toward emerging markets, specifically India and China, following the 2026 U.S. midterm elections. The shift stems from fears that a Democratic sweep could increase regulatory hurdles and construction delays for the data centers essential to AI infrastructure. This volatility has hit AI-concentrated markets in South Korea and Taiwan, prompting a move toward deep value and high dividend yields in non-tech sectors.

HSBC Holdings Plc and Citigroup Inc. have adopted bullish outlooks on Indian equities, with HSBC upgrading the market to overweight. India has emerged as a primary beneficiary of this rotation due to its limited AI exposure and strong domestic growth in healthcare and financial services. This trend is further supported by falling crude oil prices and rising merchandise exports. The NSE Nifty 50 recently recorded its best weekly performance since 2021, with overseas funds investing billions in local shares.

While institutional hedge funds have exited AI positions, some Asian retail investors continue to buy into the sector. However, reports from SBI Mutual Fund suggest that the massive scale of AI capital expenditure—projected to average 3.6% of U.S. GDP through 2032—may be unsustainable. Consequently, money managers are diversifying into Chinese healthcare, South American utilities, and European financial firms to hedge against a potential slowdown in the AI investment cycle.