The unravelling of the artificial intelligence trade after the United States midterm elections is pushing global investors towards Chinese and Indian stocks, and towards healthcare, consumer and domestically driven Asian companies, Bloomberg reports.

Asia has been among the hardest hit by the fallout from the Democrats' sweep of Congress. Many of the region's biggest stocks, including Samsung Electronics, SK Hynix and Taiwan Semiconductor Manufacturing, are critical suppliers to the global AI build-out, leaving local markets exposed as investors brace for greater scrutiny of the industry and question whether massive spending on computing infrastructure will generate sufficient returns.

India's Nifty 50 gained 8.6% last week, its best week since 2021, as foreign funds poured a net $1.9 billion into local shares through Wednesday. The Sensex rose 8.8% over the same period. Foreign institutional investors bought about 150 billion rupees, or $1.6 billion, of Indian shares on Thursday alone, their largest single-day net purchase in nearly six years. Financial shares were particularly strong, gaining more than 10% during the week.

China joins the rotation

A Hong Kong gauge tracking mainland Chinese companies gained 5.2% last week, its best performance since March 2025. Aberdeen Investments favours markets powered by stronger domestic growth, including India and Vietnam, and sees upside in Chinese technology firms.

"I expect investors to diversify more broadly and reduce their concentration in the AI trade. This should be supportive of China and other markets where valuations are less demanding," said Rajeev De Mello, global macro portfolio manager at Gama Asset Management.

Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas, said some global investors are looking at China's onshore market as a diversifier for AI-heavy portfolios. Hao Hong, chief investment officer at Lotus Asset Management, said he is betting against oil and petrochemical firms and going long precious metals and Hong Kong equity futures.

India's appeal has also grown as oil prices declined on expectations of an earlier end to the Iran war, easing a key pressure point for the energy-importing economy. Its market's lack of AI exposure, long seen as a weakness, is now being treated as an advantage.

Managers are already moving money

Some fund managers have already acted. Charlie Hong of LOGOS Asset Management said he sold his SK Hynix, Samsung, Intel and Lumentum shares last month and has since boosted Indian holdings in new-age technology companies, financial firms and contract drug manufacturers.

The rotation is reaching overlooked corners of Asia as well. Allianz Global Investors sees healthcare and consumer staples benefiting, while defence and financial stocks could underperform. In Korea, Fidelity's Dale Nicholls sees early signs of rotation beyond the semiconductor heavyweights among domestic pension funds, pointing to consumption-related areas from wellness to K-pop agencies and beauty companies.

Not everyone is ready to abandon AI. Some investors say the sell-off may offer a chance to buy the dip given the sector's longer-term growth prospects. But for now, the prevalent mood is caution. Emmer Capital's Manishi Raychaudhuri expects foreigners to keep selling Asia's AI "picks and shovels" stocks, and notes that India and China are the only two large, liquid markets offering a considerable array of non-AI exposures.

Demand for chips tells a different story

The market turmoil sits oddly beside the underlying demand figures. South Korea's semiconductor exports surged 259.4% in October to $56.44 billion, while computer exports rose 496.6% to $5.85 billion as investment in AI servers accelerated. Total Korean exports rose 93.7% year on year to $115.28 billion, although the comparison was flattered by the calendar, with October 2026 having 22 working days against 20 a year earlier.

The contrast captures the week's central tension: demand for AI hardware remains enormous, but investors are no longer willing to pay any price for the companies supplying it. Before last week's gains, benchmarks in India and China had ranked among the world's worst-performing indexes this year through October. That underperformance is now, for rotation-minded investors, part of the attraction.