Goldman Sachs: Asian Equity Crowding and Leverage Rising, Warning of Increased Pullback Risk
N.R. Finch
AI-driven capital is piling into Asian tech stocks, with crowding in Taiwan and India IT near five-year extremes. This means → any sentiment reversal could trigger synchronized downside, while cheaper China A-shares may emerge as the region's defensive pocket.
How crowded is the AI trade, exactly?
Taiwan IT has spent roughly 90% of the time since January in extreme crowding territory; India IT has also stayed well above its historical mean — both rank among Asia's most crowded trades.
This means → capital on the AI theme is already "maxed out" across positioning, momentum, and crowding cross-checks — all flashing red.
In plain terms = picture a highway jammed nine-tenths of the time. One more car doesn't speed things up — it just brings a pile-up closer.
Who is buying? Where is the money coming from?
South Korea's KOSPI and India stand out: retail trading fervor combined with passive ETF inflows form the most important base of buying behind the AI rally.
This reflects a rally driven not by institutions but by retail and passive channels — an "emotion market."
This means → this kind of money is highly sensitive to sentiment shifts — when confidence cracks, retail tends to exit faster than institutions.
Could equity issuance and IPO supply crush valuations?
Secondary-market equity financing is picking up. Companies are using high valuations to raise capital and issue new shares, potentially diluting per-share value.
The report also shows U.S. IPO fundraising rebounding — primary-market supply is rising in parallel.
This means → heavy issuance amid stretched valuations is often a signal that upside is capped. If the financing wave accelerates, it becomes another force pressing down on multiples.
How real is the "all-fall-together" risk?
Cross-asset correlation across Asia and emerging markets is climbing; individual-market diversification is shrinking.
In plain terms = diversification used to cushion losses. Now markets are increasingly moving in lockstep — when one falls, they all fall.
This means → an external shock could amplify pullback volatility significantly, with diversification offering far less protection.
Why might China A-shares actually be the safe harbor?
In contrast to the crowded AI trade, China A-shares carry relatively low valuations and low correlation to Asia's most crowded positions.
Since May, A-share earnings-revision momentum has improved; leading indicators point to marginal betterment.
This means → when regional risk appetite retreats, the A-share combination of "low valuation + low correlation + improving earnings" could deliver relative defensive value.
Content is for reference only, not financial advice.