Overseas investors aggressively pulled out of Asian tech stocks in August, following a recent rally that made these stocks appear overvalued and amid growing skepticism about the profitability of AI investments.

LSEG data shows that foreign investors sold a net $3.8 billion worth of shares in South Korea, India, Taiwan, Indonesia, Vietnam, Thailand, and the Philippines last month, marking a shift after two consecutive months of net purchases.

"The tech sector, which had been outperforming, lagged behind other sectors in August as market participants reevaluated the high valuations and began rotating towards underperforming stocks, especially with an eye on the upcoming Fed rate easing," said Yeap Jun Rong, a market strategist at IG.

Taiwan and South Korea, home to numerous companies involved in AI-related chip manufacturing, saw significant outflows of $4.2 billion and $2.1 billion, respectively, in August.

Jason Lui, head of APAC equity and derivative strategy at BNP Paribas, explained that the foreign outflows in Taiwan and Korea were driven by a reassessment of the outlook for semiconductors and AI. "Global investors are beginning to question the profitability and sustainability of large capital expenditures by leading U.S. tech companies," he noted.

Despite this trend, Indian markets recorded a net inflow of $873 million, primarily driven by new issues in the primary market. However, foreign investors sold a net $662 million worth of stocks traded on exchanges.

"Foreign investors have been reducing their exposure to India due to concerns about high valuations," said Herald van der Linde, head of equity strategy for Asia Pacific at HSBC. Indian stocks are trading at a 12-month price-to-earnings ratio of approximately 24.06, the highest among major global markets, according to LSEG data.

Meanwhile, Vietnam experienced its seventh consecutive month of net foreign outflows, with $151 million in net sales last month. Thai equities also saw $175 million in net outflows.

In contrast, Indonesian and Philippine equities attracted foreign inflows of approximately $1.85 billion and $144 million, respectively, in August.

Paraphrasing text from "Reuters" all rights reserved by the original author.