Analysis-How a few AI chip giants warped Asia's stock picking game

By Gregor Stuart Hunter and Ankur Banerjee

SINGAPORE, June 8 (Reuters) - Sam Konrad's stocks are having a fantastic year, acknowledgment to AI-fueled rallies successful Taiwan and South Korea, but his money is truthful apical dense with winners, helium present needs to ditch his champion performers.

"We person been forced sellers of TSMC, Samsung and MediaTek," said Konrad, concern ‌manager for Asia Equity Income astatine Jupiter Asset Management, of the chip-making stocks, which person respectively gained 52%, 159% and 184% truthful acold this year.

Just 3 ample Asian tech firms - ‌TSMC, Samsung and Korean chipmaker SK Hynix - present relationship for astir a 3rd of MSCI's Asia Pacific ex-Japan Index, creating attraction risks that galore progressive portfolio rules deem excessively high.

Forced selling crossed progressive funds similar Konrad's is 1 of respective side-effects of ​a rally that is riding chiefly connected the detonation of a fistful of companies.

That successful crook has created distortions crossed the marketplace portion the forced selling has added to pressures connected the battered Korean won.

According to HSBC, TSMC is the biggest portfolio underweight among Asian and planetary emerging-market funds, arsenic the region's record-breaking rally distorts its equity benchmarks and portfolio managers conflict to support up.

The double-edged quality of attraction risks has besides been seen during caller steep selloffs, with South Korean stocks sliding 12% and Taiwan down 6% successful the past 3 league from their grounds highs arsenic investors fret astir AI valuations.

CYCLE OF FORCED SELLING

Expectations of runaway ‌growth successful profits person led to TSMC occupying 41.5% of Taiwan's TAIEX, ⁠and Samsung and Hynix comprising 55% of South Korea's KOSPI, meaning these indexes are mostly bets connected 1 oregon 2 stocks - defeating the intent of tracking a benchmark to correspond a diversified portfolio.

That makes beating these benchmarks adjacent much hard for progressive managers.

The grade of attraction "creates structural challenges," said Herald Van der ⁠Linde, caput of equity strategy for Asia Pacific astatine HSBC successful Hong Kong, successful a probe note.

"As equities proceed to outperform, funds volition find it progressively hard to adhd exposure, reinforcing a rhythm of forced selling and enlarging underweight positions adjacent amid beardown fundamentals."

What's more, galore of the best-performing alternatives to these 3 stocks are inactive tied to the AI theme, meaning assemblage diversification hasn't helped returns. Information exertion stocks person led the portion with explosive ​gains, ​but different sectors similar user staples and healthcare person lagged, according to Goldman Sachs.