Coronation Asset Management has decided the artificial-intelligence trade has run too hot to keep chasing. The manager, which oversees R773 billion, has trimmed its exposure to chipmakers and shifted money towards India, telling clients that expectations for AI stocks have risen to levels that are nearly impossible to beat.
Cashing out of chips
The move played out in Coronation's R51 billion Global Emerging Markets Fund, which cut its combined holding in SK Hynix and Taiwan Semiconductor to around 5% in the second quarter, down from about 8% at the end of December. The managers who run the fund — Gavin Joubert, Iakovos Mekios and Suhail Suleman — say they are “finding very little margin of safety in most Taiwanese and South Korean stocks today”. Their read on memory chips, the components feeding the data-centre boom, is blunt: prices “have risen to well above any sensible, normalised level”. They expect those prices to stay high for a few years on AI demand before more supply eventually drags them back down. It is not an academic worry — SK Hynix, the poster child of this year's boom, has already slid almost 40% from its June peak, hit in part by South Korean authorities moving to cool a retail-trading frenzy in the stock.
Betting on a rebound instead
The cash has gone to India, where the fund lifted its allocation to just under 12%. The managers moved after the Indian market “de-rated sharply following a prolonged period of pessimism tied to geopolitical and economic concerns”. They re-established a position in Mahindra & Mahindra, which they view as a turnaround story after a weak farming season and a broader slowdown, and added to Bajaj Finance, HDFC Bank and ICICI Bank. Coronation is not alone in cooling on chips: Franklin Templeton's main emerging-markets fund has also pulled back from chipmakers, tilting instead towards Chinese internet names such as Alibaba and Tencent. For Coronation, part of India's appeal is precisely that it fell out of favour while chips soared. The bigger question is whether this is early caution or a well-timed exit. For now, Coronation is betting that the safer money is in a market most investors spent the past two years avoiding.
