Concerns over technology stock valuations rise, Asian stock markets face the largest foreign capital outflow in six years

Asian stock markets experienced the largest foreign capital outflow in nearly six years in November, as concerns over the high valuations of technology stocks intensified, triggering large-scale sell-offs.

On December 11, data compiled by Reuters showed that Asian stock markets, including those in South Korea, India, Thailand, Indonesia, Vietnam, and the Philippines, saw a net outflow of $22.2 billion in November, marking the largest monthly capital withdrawal since a net sell-off of $33.32 billion in March 2020. South Korea recorded a net outflow of $9.75 billion, the largest since March 2020.

Analysts pointed out that this wave of capital withdrawal reflects growing doubts in the market about the sustainability of the AI-driven stock market rally, leading investors to reduce their highly concentrated positions in a few AI-related stocks.

Herald van der Linde, Head of Asia Pacific Equity Strategy at HSBC, stated, "This trend reflects the rising unease among investors regarding the sustainability of the AI boom." He noted that even a slight deviation from extremely high expectations could trigger significant market volatility.

Despite the large-scale capital withdrawal, the MSCI Asia Pacific Index has still risen 23.13% year-to-date, on track to achieve its strongest annual performance in eight years, indicating that the fundamental support remains solid.

Risks of Concentrated Holdings in Tech Stocks Emerge, Triggering Large-scale Foreign Capital Withdrawal

In recent years, investors have built extremely high concentrations in a few AI-related trades, which has become the core reason for the large-scale capital withdrawal in November. Herald van der Linde stated:

"Investors have established a very high concentration in a few AI-related trades, so even a slight deviation from extremely high expectations can trigger significant market volatility."

This concentrated holding strategy amplified market adjustments when the valuations of technology stocks came under scrutiny. South Korea, as a global semiconductor hub, was hit hardest in this round of capital withdrawal, with a net outflow of $9.75 billion, the highest in nearly five years.

Data also showed that India, Thailand, and Vietnam recorded net foreign capital withdrawals of $425 million, $388 million, and $286 million, respectively. These markets had previously benefited from the global capital chasing emerging market technology stocks.

However, in contrast, the stock markets of Indonesia and the Philippines attracted net inflows of $731 million and $59 million, respectively, indicating that investors are seeking opportunities in other regional markets while reducing their exposure to technology stocks.

Despite the short-term large-scale capital withdrawal, several institutions remain optimistic about the medium to long-term outlook for Asian stock markets.

Goldman Sachs stated that super-large cloud service providers are expected to continue investing heavily in AI infrastructure before 2026-27, which may keep chip supply tight and support the profitability of Asian semiconductor companies, even if an AI bubble eventually forms, it can still support valuations.

Mike Shiao, Chief Investment Officer of Invesco Asia (excluding Japan), stated:

"The Asian stock market is expected to show resilience in 2025, thanks to policy measures, strong domestic demand, and AI-driven innovation in key markets." Looking ahead, we expect the US dollar to continue its weakening trend, which historically benefits Asian stock markets."

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