AI jitters spark a chip rout, but Asia's investment case remains strong

• The sell-off reflects a valuation reset, not a broken AI thesis. Concerns over AI capex sustainability, combined with China's semiconductor developments, prompted investors to reassess elevated semiconductor valuations rather than signalling weaker long-term AI demand.
  
  
• CXMT's IPO does not materially threaten Korean memory leaders. Its 466% debut was largely driven by limited free float and strong investor demand, while the company's profitability reflects the current DRAM pricing supercycle more than a narrowing technology gap.
  
  
• China is making meaningful progress across the semiconductor value chain, but advanced AI memory remains a high barrier. China's DUV breakthrough and CXMT's expansion strengthen its domestic semiconductor ecosystem, but it remains several technology generations behind in HBM and leading-edge memory manufacturing.
  
  
• The bigger risk is DRAM price normalisation, not a loss of technological leadership. As CXMT expands capacity, commodity DRAM pricing is likely to moderate over the next one to two years. However, Samsung Electronics and SK Hynix remain well positioned through multi-year AI memory supply agreements and their continued dominance in high-margin HBM.
  
  
• Asia's investment opportunity extends beyond semiconductors. Attractive valuations, improving earnings prospects for China's internet sector, resilient income from Singapore's banking sector and structural AI growth across the region provide investors with multiple long-term return drivers beyond AI hardware alone.

Over the past few weeks, Asian equities have already endured heightened volatility as investors grappled with growing "AI capex fatigue". Markets have increasingly questioned whether the pace of AI infrastructure spending can continue to justify the sector's elevated valuations. That cautious sentiment culminated in a broad-based sell-off on 28 July 2026, driven by two China-related developments. Chinese DRAM manufacturer ChangXin Memory Technologies (CXMT) surged 466% on its market debut on 27 July, while reports that China had made significant progress in developing domestically produced deep ultraviolet (DUV) lithography systems reignited concerns over China's rapid semiconductor advancement and the long-term competitive positioning of established global chipmakers.

South Korea bore the brunt of the sell-off, with trading briefly halted after circuit breakers were triggered during the morning session. Given its heavy concentration in memory producers, the Korean market naturally carries the highest sensitivity to changes in DRAM expectations. The weakness quickly spread across the broader semiconductor ecosystem. Taiwan and Japan, home to many of the world's leading chip foundries, equipment makers and materials suppliers, also recorded losses as investors indiscriminately reduced exposure across the global semiconductor supply chain (Figure 1).

In contrast, China, Hong Kong, India and Singapore proved relatively resilient due to their considerably lower exposure to AI hardware and derive a larger proportion of earnings from domestic businesses.

Figure 1: Asian markets performance on 28 July 2026

CXMT's spectacular debut says more about market mechanics than narrowing leadership

At first glance, CXMT's 466% first-day gain appears to signal a dramatic shift in the competitive landscape of the global memory industry. In reality, the share price reaction was largely driven by market mechanics rather than a fundamental reassessment of the company's intrinsic value. With only around 6.7% of shares available for public trading and retail subscriptions exceeding 200 times the shares offered, the IPO created an extreme supply-demand imbalance. Such conditions frequently produce outsized first-day gains that are poor indicators of fair enterprise value.

The more important question for investors is whether CXMT has fundamentally narrowed the competitive gap with Samsung Electronics and SK Hynix.

The answer remains no.

Although CXMT has become the world's fourth-largest DRAM manufacturer, the gap with the industry leaders remains substantial. Its strongest quarterly revenue in 1Q26, at CNY50.8 billion, was only around one-fifth of SK Hynix's memory business revenue and roughly one-seventh of Samsung's Device Solutions division. The company's rapid rise in market share is notable, but scale remains an important competitive advantage in an industry where technology, manufacturing efficiency and capital intensity are closely intertwined.

Likewise, CXMT's sharp improvement in profitability should not be mistaken for technological convergence. Its implied net margins have moved closer to those of its Korean peers largely because the entire DRAM industry is benefiting from an extraordinary pricing upcycle rather than a narrowing technology gap. Samsung reported average memory selling prices approximately 146% above its 2025 average, while SK Hynix recorded DRAM average selling price growth in the mid-60% range. In such an environment, virtually every producer with available capacity can generate outsized earnings, regardless of its position on the technology curve. Strong margins today therefore reflect favourable industry conditions more than evidence that CXMT has caught up with the leading players.

The same perspective applies to reports that China has successfully developed domestically produced immersion DUV lithography systems. While the development is strategically significant and underscores China's rapid progress in semiconductor self-sufficiency, the market reaction appears to have run ahead of the fundamentals. Domestic DUV tools primarily enhance China's ability to manufacture mature-node and mainstream semiconductors, reducing reliance on imported equipment across a broad range of consumer and industrial applications. However, they remain well short of the extreme ultraviolet (EUV) lithography systems required to produce the world's most advanced AI processors.

More importantly, building a lithography machine is only the starting point. Commercial success depends on years of refinement in process integration, yield optimisation, reliability testing and the development of a supporting ecosystem of materials, software and manufacturing expertise. China's advances across both memory and semiconductor equipment are real and should not be underestimated, but progress should not be conflated with parity. The technological gap at the leading edge of AI computing remains meaningful and is unlikely to close in the near term.

Related article: ASML slid as much as 8% on China's DUV breakthrough. We see opportunity

The real battleground remains AI memory

Where CXMT is genuinely making progress is in mainstream DRAM. The company has expanded rapidly over the past year, increasing its global DRAM market share from approximately 3% to around 8% by revenue in the first quarter of 2026 (Figure 2). Its LPDDR products have entered the supply chains of Chinese electronics brands like Xiaomi, Oppo, Vivo, Transsion and Lenovo, and Apple has begun evaluating CXMT memory for China-market devices. This represents meaningful import substitution within China's domestic consumer electronics market and could gradually erode Samsung's and SK Hynix's share of lower-margin consumer DRAM over the next several years.

Figure 2: DRAM market share as of 31 March 2026

However, this should not be confused with leadership in the industry's most profitable segment. The Korean manufacturers derive an increasing proportion of profits from high-performance server DRAM and high-bandwidth memory (HBM), the critical memory technology powering AI accelerators. This remains an area where CXMT continues to face significant technological hurdles.

CXMT currently manufactures DDR5 and LPDDR5 products using an approximately 16nm process node, whereas Samsung Electronics, SK Hynix and Micron have already transitioned to more advanced 1b and 1c DRAM nodes with effective feature sizes of around 10–12nm. Industry estimates suggest CXMT remains roughly two to three technology generations behind the leading manufacturers.

More importantly, CXMT has virtually no commercial presence in HBM, the fastest-growing and highest-margin segment of the memory market. The company's IPO proceeds also reinforce its current strategic priorities. The bulk of the capital raised will be invested in expanding mainstream DRAM capacity and upgrading existing production lines, with no dedicated investment programme for large-scale HBM expansion. This suggests that, over the medium term, CXMT's competitive focus remains on commodity and consumer memory rather than the AI memory segment.

Consequently, the more immediate challenge for Samsung Electronics and SK Hynix is unlikely to come from technological disruption, but from the eventual normalisation of the DRAM cycle. As CXMT ramps production at its new Shanghai and Beijing fabs, alongside Samsung's Pyeongtaek Plant 5 coming online in early 2028, additional industry capacity is likely to gradually ease today's supply-constrained DRAM market. This should moderate the exceptional pricing power currently enjoyed by memory producers and place downward pressure on commodity DRAM margins.

That said, the earnings impact on the Korean memory leaders is unlikely to be immediate. Both Samsung and SK Hynix have secured multi-year supply agreements, typically spanning three to five years, with major hyperscale cloud customers, providing greater pricing visibility and demand certainty for their high-value AI memory products. As a result, any margin compression is likely to be concentrated initially in mainstream DRAM, while profitability in high-bandwidth memory (HBM) should remain comparatively resilient. The Korean manufacturers are therefore well positioned to preserve their leadership in advanced AI memory even as the broader DRAM market becomes more balanced.

Accordingly, our investment thesis on the Global X Asia Semiconductor ETF (HKEX:3119) remains unchanged. Recent developments do not undermine Asia's leadership in semiconductors; rather, they highlight the region's increasingly comprehensive manufacturing ecosystem. Korea continues to dominate advanced memory, Taiwan remains indispensable in leading-edge logic and foundry manufacturing, while China is steadily strengthening its capabilities in mainstream memory and semiconductor equipment. Together, these developments reinforce Asia's central role in the global semiconductor value chain, even as competition within the region intensifies.

Asia's growth drivers extend well beyond semiconductors

While AI remains one of Asia's most compelling structural growth drivers, investors should avoid viewing the region solely through the semiconductor lens.

Semiconductor stocks are inherently volatile. Periods of elevated expectations are often followed by valuation resets, even when long-term demand remains intact. As AI-related volatility increases, broadening exposure across multiple earnings drivers becomes increasingly important.

Both the MSCI China Index and Hang Seng Index have recovered steadily since late June as investors rotated into attractively valued sectors that had previously been overlooked during the AI hardware rally. Unlike Korea or Taiwan, these two equity markets are dominated by internet platforms and financial institutions rather than semiconductor manufacturers. This provides investors with exposure to AI adoption through cloud computing, software and digital services without relying exclusively on memory pricing cycles.

Fundamentals are also improving. Alibaba, Meituan and JD.com have shifted away from aggressive subsidy-led competition towards improving profitability and capital discipline. Early earnings indicators from Alibaba suggest this strategic pivot is beginning to translate into stronger financial performance, supporting further earnings upgrades and valuation recovery across the Hang Seng Tech Index during the second half of 2026.

Singapore offers another complementary source of returns. The Straits Times Index remains anchored by its banking sector, with DBS, OCBC and UOB accounting for roughly half of the benchmark. Continued geopolitical uncertainty has reinforced Singapore's position as a regional safe haven, supporting sustained wealth management inflows and fee income growth. Meanwhile, with SORA appearing to have reached its trough and policy rates expected to gradually normalise, banks could see renewed support for net interest margins. Combined with dividend yields exceeding 4%, Singapore continues to offer one of the strongest income propositions among developed Asian equity markets.

Structural reforms are providing an additional tailwind. As of early June 2026, approximately SGD2.6 billion remained available for deployment under the Equity Market Development Programme after SGD3.95 billion of placements had already been completed. Liquidity has improved markedly, with SGX's Securities Daily Average Value rising 79% year-on-year in May while overall market turnover increased 70%. Small- and mid-cap companies have been among the biggest beneficiaries as improving liquidity supports both earnings growth and valuation re-rating.

Asia offers diversification benefits

The latest semiconductor sell-off should be viewed primarily as a repricing of expectations rather than a deterioration in Asia's long-term investment fundamentals. While near-term volatility is likely to persist as investors reassess AI spending and semiconductor valuations, the region's structural growth drivers remain firmly intact.

More importantly, Asia's investment opportunity is diversified. Investors can gain exposure to structural AI growth through Korea and Taiwan, participate in China's accelerating technology innovation and improving internet earnings, while complementing growth with the stability, attractive dividend yields and improving market liquidity offered by Singapore's equity market.

With forward PE of Asia ex Japan at 12.3X, trading at a meaningful discount to US (21.2X) and European (15.8X) equities as of 29 July 2026, the region continues to offer multiple sources of earnings growth at more compelling valuations. Rather than viewing the latest semiconductor correction as a reason to reduce exposure, investors should see it as an opportunity to build a more balanced allocation across Asia's evolving growth drivers.

The MSCI Asia ex Japan Index is projected to reach USD1,400 by FY2028, implying 34% upside from the 29 July 2026 close. The FactSet Asia Semiconductor Index offers even greater return potential, with our FY2028 target of HKD1,594 implying 130% upside.

Table 1: Recommended products

Market / Sector	Recommended Products
Asian Markets	M&G (Lux) Asian A Acc USD Fidelity Asia Pacific Dividend A-USD iShares Core MSCI Asia ex Japan ETF (HKEX: 3010)
Asia Semiconductors	Global X Asia Semiconductor ETF (HKEX:3119)

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

All materials and contents found in this site are strictly for general circulation and informational purpo