REFILE-ROI-Can Asia’s AI ‘losers’ reshuffle the leaderboard?: Raychaudhuri

By Manishi Raychaudhuri

HONG KONG, Nov 27 (Reuters) - As investors grow increasingly wary of the U.S.-led artificial intelligence frenzy, some “AI losers” in Asia may start to see their fortunes change.

The markets’ fascination with AI has boosted the “Magnificent Seven” – Amazon AMZN.O, Alphabet GOOGL.O, Apple AAPL.O, Meta META.O, Microsoft MSFT.O, Nvidia NVDA.O and Tesla TSLA.O – as well as Asian AI leaders, including chip and memory manufacturers in Taiwan and Korea and large language model (LLM) developers listed in Hong Kong.

In contrast, Indian and Southeast Asian equities have underperformed enormously. That's not only because direct AI beneficiaries are hard to find in these regions, but also because some key sectors there face serious threats from rapid AI adoption or from simple investor apathy.

AI LOSERS

Asia’s service sector is highly at risk of AI disruption.

Routine and repetitive jobs like call centres, telemarketing, accounting, administrative support are particularly vulnerable as state-of-the-art AI technology gets more proficient.

It’s therefore unsurprising that several Indian information technology (IT) service companies, including Tata Consultancy Services TCS.NS, Infosys INFY.NS and Wipro Technologies, have underperformed sharply in the past year.

The Philippines is another prime example of an economy with a vulnerable service sector. About half of the country’s service exports include business process outsourcing (BPO), call centres and IT services - all areas that could be disrupted by AI.

Foreign equity investors appear to be getting antsy. They have withdrawn $840 million from the country this year, according to the Philippine Stock Exchange, pushing down the Philippine peso against the U.S. dollar and sending its main equity index tumbling by more than 10%.

AI adoption could obviously have a massive negative impact on the labour markets in these service-exporting giants and, by extension, their domestic consumption and overall economic activity.

Looking at current U.S. employment, Goldman Sachs estimates 2.5% could be at risk from AI, primarily jobs in services, including many industries – like customer services, computer support and business operations – where multinational companies have been outsourcing work to Asia in recent years.

INVESTOR APATHY

Another knock-on effect of the AI boom has been the disregard of many fundamentally strong sectors in Asia.

For example, share prices in India’s producer manufacturing sector – also known as industrials – have fallen by around 7% in the year through November 25, even though consensus estimates for 2025 and 2026 earnings growth are at 15% and 25%, respectively.

Importantly, investors were attracted to thematic stories surrounding many of these now seemingly forgotten sectors until recently. Indian electronic manufacturing, for instance, has been supported by companies’ efforts to shift away from China as well as India’s rising focus on indigenous defence manufacturing.

But such themes fell by the wayside as the AI narrative dislodged almost everything else.

WHEN THE FRENZY FADES

The AI frenzy has cooled lately as investors have looked warily at the steep valuations of the "Mag 7" and questioned whether hyperscalers’ enormous capex outlays can yield commensurate returns.

If this trepidation builds, investors may seek to lighten their large AI plays and deploy capital elsewhere. Some well-known hedge funds, like Michael Burry’s Scion Asset Management, have reportedly done so already.

In such a scenario, could some of today’s Asian equity laggards become tomorrow’s blockbusters?

Industries that have fallen victim to the “market apathy” narrative certainly could recover, if investors go bargain hunting.

However, sufferers from AI disruption may not, unless they reinvent themselves. That, of course, has massive implications for service-exporter economies throughout Asia.

It is also possible that investors still keen on AI but anxious about pricey U.S. tech stocks could look to rotate into some of Asia’s lower-priced AI winners. For example, Korean giants such as Samsung 005930.KS and SK Hynix 000660.KS are still trading at single-digit price-to-earnings multiples.

Chinese internet platforms, such as Alibaba 9988.HK and Tencent 0700.HK, may prove resilient too. They are deploying LLMs to expand and improve their already cash-generative businesses, but unlike many of their U.S. peers, they have been conservative with their AI spending.

When the dust settles on the AI boom, there will certainly be some reshuffling of winners and losers. But given how transformative the technology could be, some of Asia’s vulnerable service industries may never catch up.

(The views expressed here are those of Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd and the former head of Asia-Pacific Equity Research at BNP Paribas Securities.)

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