A violent sector rotation is reshaping Asian equity markets as capital flees the semiconductor names that drove the first half of 2024 and chases cheaper exposure to the artificial intelligence theme. Korean stocks — heavy with memory and foundry giants — have borne the brunt of the selling, while Chinese benchmarks have surged on relative valuation appeal and policy support for domestic tech.

The AI rotation trade reflects growing skepticism that current chip earnings can justify peak multiples, especially with memory-cycle visibility clouding and U.S. export controls tightening. Fund managers are reallocating toward Chinese internet platforms, industrial automation plays, and power-grid infrastructure — sectors trading at steep discounts to their Korean counterparts but with direct AI demand linkages.

Volume data shows the shift is institutional, not retail: northbound flows into Shanghai and Shenzhen have accelerated for three consecutive weeks, while foreign ownership of Samsung Electronics and SK Hynix has dipped to multi-month lows. The rotation has trimmed the KOSPI's year-to-date lead over the CSI 300 to single digits.

For portfolio managers, the trade tests discipline: chasing momentum in Chinese names after a 20% rally risks buying the next crowded exit, while abandoning chip leaders ignores their irreplaceable role in the compute stack. The decisive factor will be third-quarter guidance — any sign of order-book resilience could reverse the flow as quickly as it started.