AI stock selloff hits US and emerging markets; Japan and Europe seen as diversifiers

what happened

Investors worried about concentration in their portfolios' tech holdings may want to look at developed markets, especially Japan and Europe. TradingView reports that the latest slump in artificial intelligence stocks showed again that companies outside the tech sector are holding up much better. The semiconductor ETF SOXX fell 3% last week and is down more than 10% since early October. Tech makes up roughly 40% of the S&P 500, while South Korea and Taiwan together account for nearly half of the EEM emerging markets ETF, so diversification is hard to achieve.

David Lebovitz of JPMorgan Asset Management says Japan and Europe could complement U.S. stocks over the next 10 to 15 years. The firm is overweight Japan, holds Europe at market weight, and has trimmed its emerging markets overweight after the rapid rise in South Korean and Taiwanese shares. In Japan, better corporate governance and improving nominal growth are key supports, and a weak yen could add 2.4% to expected returns, according to his estimate. Europe is attractive for its lower valuations, a stronger currency and industrial companies that benefit from higher defense spending. Risks cited include an energy crisis, political uncertainty and the possibility of rising interest rates.

why it matters

For markets, this is a reminder of concentration risk, as capital leaving U.S. tech could flow into other regions. The strategists also acknowledge near-term risks, so many investors prefer to wait for better entry points while watching how events unfold.

market impact

US and emerging market stocks: the AI-sector selloff weighs on chipmakers, while Japan and Europe look more resilient

instruments