This series by UBS is presented by automated voices and may include adaptive narration.
Welcome to CIO Essentials Audio, where we break down the trends shaping your financial world.
Let's kick things off with the big picture.
Equity markets had a strong run in the third quarter of 2025 but lately there's been a shift in sentiment.
High valuations, market concentration, and all the buzz around AI, especially with Nvidia's investment
in OpenAI and Oracle's new partnership have people talking.
What stands out to you about these developments?
Yeah, there's a lot to unpack there.
Well, the comparisons to the late 1990s dotcom bubble are definitely making the rounds especially with questions
about circularity in the AI ecosystem.
However, i wouldn't recommend reducing equity exposure right now.
Robust AI capital expenditure trends, and adoption rates are key reasons to stay invested.
Absolutely - and I think what's particularly notable is the projection that the AI industry could hit 10
percent adoption by year end with the market potentially reaching 1.5 trillion US dollars by 2030.
Early adopters are already seeing economic benefits.
Let me ask you this - how does the macroeconomic backdrop play into this outlook?
Yeah- great question.
Well it's worth highlighting first, that US economic growth has been stronger than expected, and with lower
interest rates anticipated into early 2026 - that's a positive for equities.
We expect the S&P 500 to reach 7300 by June 2026.
Plus Fed rate cuts have historically benefited emerging markets, and China is expected to gain from improved
liquidity and rising consumer spending.
That's fascinating.
So when it comes to regional and sector preferences what do you favor right now?
Well, we're overweight on US and global equities with a preference for Japan, emerging markets, China and
Brazil.
On the sector side, we highlight technology, utilities, global banks, US financials, US health care as well
as European industrials and real estate.
Great, let's dive deeper into some of those sectors.
For example what's driving the positive view on global banks and US health care
For global banks it's about improved cost efficiency, lower credit risk, excess capital and a more normalized
yield curve.
They're also seeing some deregulatory tailwinds and a resilient macro environment.
Both of which, support lending and net interest income growth.
As for US health care - policy clarity on drug pricing and tariffs is a plus and there's structural growth
from demand for products that extend healthy lifespans.
New therapies for obesity and Alzheimer's could offset patent expirations and the sector's defensive qualities
add resilience.
That's an interesting perspective.
Utilities and power infrastructure also seem to be in focus especially with the AI and data center trends.
What's the story there?
Yeah, that's quite a hot topic at the moment.
Demand for electricity and grid infrastructure is accelerating with OpenAI deals fueling global investment.
By 2030, annual investment in power generation, energy storage, grid infrastructure and data centers could
reach 3 trillion US dollars.
Utilities offer both defensive qualities and growth potential and US valuations are considered fair.
Right - and European industrials are trading at a discount to US peers with potential benefits from
increased defense spending, reshoring and the energy transition.
But what about risks - Are there any red flags to consider?
Yes we do note some risks like supply demand mismatches, leverage, financial engineering and the potential
for AI circularity.
It's clear that while the outlook is constructive, monitoring these risks is important.
And of course it's always good to remember that past performance isn't indicative of future results.
Couldn't agree more.
Any final takeaways?
Only one from my side today - Although we're seeing high valuations and market concentration, these aren't
necessarily reasons to underinvest.
The combination of AI and macroeconomic trends supports a positive view on equities, but diversification and
risk monitoring remain key.
That's a great takeaway.
Thanks so much for sharing your insights today.
Thank you.
It's been a pleasure as always, and I look forward to the next one.
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