Australia’s limited exposure to the global artificial intelligence (AI) trade, once a perceived weakness for the local sharemarket, has rapidly become an advantage. Cracks in the semiconductor sector are triggering a capital rotation from Asia’s tech hubs towards the Australian exchange. This was underscored when South Korea’s benchmark Kospi index plunged almost 11 per cent in a single session, erasing a third of its value over the past month.
In contrast, Australia’s S&P/ASX 200 Index, after an initial dip, rallied strongly, driven primarily by its largest stocks. Bell Potter’s director Richard Coppleson suggested this indicated a major international fund was likely exiting Asia to invest in Australia’s larger, safer assets. The global tech sell-off, affecting South Korea and Wall Street, is largely fuelled by concerns over whether billions invested in AI will yield adequate returns.
The ASX 200 has largely been insulated from this global downturn in chip companies, as its technology sector constitutes just two per cent of the local bourse. This contrasts with South Korean chip giant SK Hynix, a major manufacturer of semiconductors, which recently missed market expectations despite a profit surge. An IG market analyst highlighted rising risks of a “Korean-style financial crisis” from unwinding margin lending.
Australia’s outsized exposure to banks and mining stocks continues to attract attention as a perceived safe-haven, with major bank stocks rallying over eight per cent since June 30. However, local money managers, like Phil King’s Regal Partners — an investment management firm focused on alternative assets — remain cautious. Investment director Charlie Aitken cited a “feels like recession” on the east coast, pointing to department giant Myer’s recent profit warning.
