Coronation sends a warning to South African investors in AI stocks

Coronation, which oversees R776 billion, has trimmed its exposure to chipmakers and increased its allocation to India, as expectations for artificial intelligence stocks have risen to levels that are nearly impossible to beat.

The South African money manager’s R50 billion Global Emerging Markets Fund cut its combined weighting in SK Hynix and Taiwan Semiconductor Manufacturing Company to around 5% in the second quarter from about 8% at the end of December.

“We are finding very little margin of safety in most Taiwanese and South Korean stocks today, as was the case with Indian stocks in 2024/2025 and Chinese stocks in 2020,” Gavin Joubert, Iakovos Mekios and Suhail Suleman, who run the fund, said in a note. 

The move enabled the managers to increase the fund’s exposure to India after the market had “de-rated sharply following a prolonged period of pessimism tied to geopolitical and economic concerns,” they said.

The allocation was raised to just under 12%, with the fund re-establishing a position in Mahindra & Mahindra, which it views as a turnaround story after a weak agricultural season and broader economic slowdown.

It also increased its holding in Bajaj Finance, HDFC Bank and ICICI Bank.

Coronation’s retreat from one of the world’s hottest trades mirrors growing investor scepticism about the sustainability of the AI rally, which has concentrated emerging-market portfolios in chipmakers at the expense of other sectors and markets.  

Franklin Templeton’s main emerging equity fund has also scaled back on chipmakers’ shares and is now favouring Chinese internet names such as Alibaba and Tencent.

The prices of memory chips — an important input into data centres — “have risen to well above any sensible, normalised level,” the Coronation managers said.

“Memory prices will likely remain high over the next few years due to AI-related demand, but will ultimately come down as more supply inevitably comes online.”

SK Hynix, the poster child of this year’s boom, has been hit by South Korean authorities’ efforts to contain a retail trading frenzy. The stock has slid almost 40% from its June peak.