Global investment banking firm Jefferies has increased its recommended allocation to Indian equities while reducing its exposure to South Korea and Taiwan, signalling a shift in its Asia-Pacific investment strategy amid growing concerns over the sustainability of the global artificial intelligence (AI) investment boom.

In its latest GREED & fear investment note, Christopher Wood, Global Head of Equity Strategy at Jefferies, raised India's recommended weighting by two percentage points to 14 per cent in the firm's Asia-Pacific ex-Japan relative-return portfolio.

The revised allocation maintains India's overweight position against its 12 per cent weighting in the MSCI benchmark index.

At the same time, Jefferies reduced its allocations to South Korea and Taiwan by one percentage point each, bringing their respective portfolio weightings to 18 per cent and 24 per cent. Both markets continue to carry underweight positions.

The latest adjustment marks a reversal of the firm's earlier preference for North Asian technology markets, particularly those benefiting from the global semiconductor and AI hardware rally.

Why Jefferies is increasing its India exposure

The portfolio adjustment comes as investors reassess the massive capital expenditure undertaken by leading US technology companies to expand AI infrastructure, including data centres, computing capacity and advanced semiconductor systems.

Wood has expressed concerns that financial markets may become increasingly reluctant to finance the next phase of AI-related investments, despite continued spending commitments from major technology companies.

According to estimates cited in the report, Microsoft, Amazon, Alphabet and Meta could collectively spend approximately $1.04 trillion on capital expenditure in 2027.

However, questions surrounding financing costs, cash flows and the ability to generate adequate returns from these investments are creating uncertainty across the technology sector.

Social media buzz: AI investment concerns reshape global market sentiment

The growing debate over the sustainability of AI infrastructure spending has become an important theme in global financial markets.

Investors are increasingly monitoring semiconductor valuations, technology companies' borrowing costs and the profitability of large-scale AI investments.

Follow the market discussion: Jefferies official website | Jefferies on LinkedIn

Korea and Taiwan face greater semiconductor exposure

South Korea and Taiwan have substantial exposure to the global semiconductor supply chain, including memory chips, foundries and semiconductor manufacturing equipment.

This makes their equity markets particularly sensitive to changes in global technology spending.

Wood's report highlighted a significant correction in semiconductor-linked stocks. Memory stocks have declined approximately 40 per cent from their late-June peaks, while the China AI Semiconductor Top 10 Index has fallen by around 50 per cent from its mid-year high.

The developments have strengthened concerns that the exceptional momentum in AI-related hardware investments may not continue at the same pace.

What Jefferies' decision means for India

For India, the increased allocation represents a stronger relative preference within Jefferies' regional investment portfolio.

The country's equity market has a broader earnings base, with significant exposure to domestic consumption, financial services, infrastructure and other sectors that are less directly dependent on global semiconductor capital expenditure.

However, the revised allocation should not be interpreted as confirmation of immediate foreign institutional investor inflows or a guarantee of higher stock market returns.

Rather, it indicates that India could offer greater portfolio diversification if global investors begin reducing their exposure to AI-heavy markets.

The development also comes at a time when international investors are reassessing regional opportunities and the risks associated with concentrated technology investments.

Jefferies' latest positioning therefore highlights an important shift in global investment sentiment: India is gaining relative importance as concerns over the sustainability of the AI spending cycle increase.

Whether this shift translates into sustained foreign investment in Indian equities will depend on earnings performance, valuations, global liquidity and broader economic conditions.