In both China and India, the ten largest companies now account for about 19% of total market capitalization, a decline from 26% and 22% respectively a year ago, according to Bloomberg data. This shift highlights a broader trend where markets with diversified company bases are underperforming compared to those with concentrated AI-driven growth.
The decline in concentration is particularly evident in India, where the Nifty 50 benchmark is down about 8% this year. Dominated by legacy giants such as Reliance Industries and HDFC Bank, the index lacks a strong AI presence. Even leading tech firms like Tata Consultancy Services and Infosys Ltd. are rooted in traditional software services, which are increasingly seen as vulnerable to AI disruption.
Conversely, markets in Taiwan and South Korea have surged, driven by AI and memory sector leaders. Taiwan's benchmark, buoyed by Taiwan Semiconductor Manufacturing Co., has risen 54% this year. Meanwhile, South Korea's Kospi index has roughly doubled, powered by SK Hynix Inc. and Samsung Electronics Co. The top 10 companies in South Korea now account for about 65% of the market, doubling their share from a year ago.
“Asia’s concentration story is split. In the tech-heavy markets, AI and memory winners are driving index concentration higher. But in India, China and Hong Kong, concentration is falling because there is no single dominant AI winner.”
Charu Chanana, Chief Investment Strategist at Saxo Markets
In China, while the largest companies are conglomerates with mixed revenue streams, some of the best-performing stocks are those directly tied to AI, such as Cambricon Technologies Corp. and SMIC. This shift in investor focus has contributed to a 5% rise in the CSI 300 Index this year, despite the declining market-cap share of its top ten companies.
The broader participation in China, with capital flowing into banks, insurers, and AI-adjacent stocks, suggests a healthy investor rotation. This diversification helps explain why China has delivered positive returns despite the declining concentration of its largest firms.
Background
Historically, markets with a few dominant companies have shown rapid growth when those companies are tied to emerging sectors. However, diversified markets can offer stability in volatile times, as seen in past economic cycles.
As markets continue to evolve, the focus will likely remain on how different regions adapt to the AI boom. Investors will be watching whether diversified markets like India can leverage their broader earnings base for stability, especially if AI spending cycles are perceived as overheated.
