From the studio

Podcast: CIO's Xingchen Yu and Laura Smith onthe recent upgrade of Emerging Market equities (13 min)
Video: CIO's Delwin Limas breaks down circular AI deals and bubble concerns (5 min)
Podcast: Why we upgraded Chinese equities to Attractive (12 min)

Thought of the day

US-China trade tensions have weighed on investor sentiment in recent days. The Trump administration is reportedly considering fresh export curbs on a wide range of goods made with US software, while Beijing is demanding sensitive data from some US semiconductor firms in an anti-dumping investigation. The S&P 500 slid 0.5% on Wednesday—though it remains close to its all-time high set earlier this month—and the negative tone carried through to some Asian markets on Thursday.

The latest developments came ahead of an anticipated sideline meeting between US President Donald Trump and Chinese President Xi Jinping at next week’s APEC summit, with both sides looking to extend a trade truce recently put at risk by renewed tensions. China earlier this month expanded its rare earth export controls, while Trump threatened fresh tariffs against China.

We think the equity bull market has further room to run, and have reiterated that an easing Federal Reserve, durable earnings growth, and AI investment spending support our Attractive view on US equities. We believe it is important to have adequate exposure to US stocks.

But we also believe investors should diversify their portfolios beyond US equities. Any setbacks in US-China relations or potential concerns about the durability of the AI-driven rally could trigger bouts of volatility. Against the current backdrop, we see appealing opportunities in select equity markets in Asia, quality bonds, and gold.

China and Japan stand out in Asia. We particularly like China’s tech sector as we believe Beijing’s push for tech self-sufficiency and innovation creates a foundation for the rally to continue. More broadly, we believe China’s supportive liquidity conditions, targeted policy measures, and retail asset reallocation from deposits should bolster the Chinese equity market, despite tensions with the US. Elsewhere, p ro-growth policies expected from Prime Minister Sanae Takaichi’s government are likely to offer a tailwind for Japanese equities, which should continue to benefit from the ongoing corporate structural reforms. Domestically oriented sectors, particularly those tied to infrastructure, technology, and national security, should see additional support, in our view.

Quality bonds remain appealing in a portfolio context. The yield on the 10-year US Treasury has fallen to the lowest level in a year, and we think it can drift lower over the coming year as the Fed continues to cut interest rates. We would expect quality bonds to rally in the event of fears about the health of the US economy or the durability of the AI rally. With yields still at relatively elevated levels, the risk-return profile for quality bonds is appealing, and they have ample scope to appreciate in a more adverse scenario.

Gold can be a valuable component of a resilient investment strategy. Gold remains an effective portfolio diversifier and hedge against political and economic risks, and we view this week’s sell-off as a healthy consolidation. While volatility is likely to persist in the near term, lower real interest rates, a weaker US dollar, and concerns over government debt or geopolitical uncertainty should continue to boost demand for bullion. We maintain our year-end target of USD 4,200/oz, with further gains toward our upside case of USD 4,700/oz possible should adverse macro and political developments emerge.

So, while we recommend that investors position to benefit from the expected further rally in US stocks over the next 12 months, diversification remains key to build resilient portfolios for the long term.