Global investment bank Jefferies has significantly adjusted its Asia-Pacific ex-Japan model portfolio, increasing its recommended allocation to India to 14%. This strategic move, detailed in Christopher Wood's latest GREED & fear report, comes at the expense of South Korea and Taiwan, whose allocations have been trimmed by one percentage point each.
The shift reflects growing apprehension within financial markets regarding the sustainability of the global artificial intelligence (AI) investment boom and a sharp sell-off in AI-linked semiconductor stocks. India's weighting has been raised by two percentage points, establishing an 'overweight' position relative to its benchmark.
Reasons Behind the Portfolio Rebalance
Jefferies' decision to boost its India allocation is primarily driven by concerns surrounding the AI sector rather than direct improvements in India's domestic economic fundamentals or earnings growth. The report highlights a significant correction in the AI-linked semiconductor market, suggesting investor enthusiasm may be waning.
For instance, the China AI Semiconductor Top 10 Index, which surged 109% in the first half of 2026, has since plummeted by 50%. Similarly, an index tracking major memory-chip companies like Micron, Samsung Electronics, and SK Hynix has fallen approximately 40% from its late-June peak. These corrections are particularly impactful for South Korea and Taiwan, given their substantial exposure to the global semiconductor supply chain.
Is the AI Spending Boom Peaking?
A central question posed by Jefferies is whether the unprecedented AI capital expenditure cycle could be nearing its peak in 2026. While actual spending data has yet to confirm a slowdown, the report questions the financial markets' capacity to sustain such massive investments indefinitely.
Consensus estimates suggest that major tech giants like Microsoft, Amazon, Alphabet, and Meta could collectively spend an staggering $1.04 trillion on capital expenditure in 2027. AI-related capital expenditure has been a significant contributor to economic growth, accounting for 1.39 percentage points of the 2.1% US real GDP growth in the four quarters leading up to September 2026. A sharp deceleration in this spending could have broad implications for global economic growth and equity markets.
Implications for Indian Investors
Jefferies' increased model allocation to India signals a relative preference for the market amidst escalating AI-related risks. For Indian investors, this development underscores the importance of monitoring global technology exposure, particularly through international funds and ETFs.
However, it is crucial to note that a higher model allocation does not guarantee stronger Indian equity returns or an immediate surge in foreign portfolio investment. The key consideration is whether the ongoing correction in AI-heavy markets will encourage broader portfolio diversification towards relatively less exposed markets such as India.