A leading asset management firm with $47 billion in assets has reduced its exposure to key semiconductor companies while increasing its allocation to India, citing stretched valuations in the artificial intelligence sector.
Coronation Fund Managers, a South African firm, adjusted its $3.1 billion global emerging markets fund in the second quarter. It lowered its combined weighting in SK Hynix and Taiwan Semiconductor Manufacturing (NYSE: TSM) to around 5%, down from approximately 8% at the end of last December.
Key Drivers for the Portfolio Reallocation
The fund's managers, Gavin Joubert, Iakovos Mekios, and Suhail Suleman, noted in a report that most Taiwanese and South Korean equities currently offer very little margin of safety, a situation they compare to Indian stocks in 2024 and 2025.
This strategic shift allowed the managers to boost their exposure to the Indian market. They viewed Indian equities as having undergone significant valuation deratings due to prolonged pessimism linked to geopolitical and economic concerns.
Increased Investments in Indian Equities
The fund's allocation to India was raised to just under 12%. It re-established a position in Mahindra & Mahindra, viewing it as a potential recovery story following a weak agricultural season and a broader economic slowdown.
Additionally, the fund increased its holdings in financial institutions Bajaj Finance, HDFC Bank, and ICICI Bank.
Broader Trend of Skepticism Toward AI Rally
Coronation's move away from one of the world's hottest trades reflects growing investor skepticism about the sustainability of the AI boom. This rally had previously led to excessive concentration in chipmakers within emerging market portfolios, often at the expense of other sectors and regions.
This trend is not isolated. Franklin Templeton's flagship emerging markets equity fund has also scaled back its holdings in chip manufacturers, showing a current preference for Chinese internet giants like Alibaba and Tencent Holdings.
Market Impact on Key Chip Stocks
SK Hynix, a prominent beneficiary of this year's surge, has faced headwinds from South Korean authorities' measures to curb speculative retail trading. The stock has declined nearly 40% from its peak in June.
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