From the studio

Video: Market Playbook | James Cheo on China tech positioning (6 mins)
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Thought of the day

Global equities ended the second quarter on a positive note, with the MSCI All Country World Index’s 14.5% gain for the three-month period marking the best quarterly performance in six years. Semi stocks, meanwhile, had their best-ever quarter—the Philadelphia Semiconductor Index rallied 87.8% over the period.

While markets started July in a cautious mood amid reports that talks between the US and Iran hit new hurdles, we expect stocks to rise over the next six months.

AI-related growth should continue to underpin market gains. Despite ongoing concerns over the sustainability of AI capex growth, recent equity capital issuance by megacap tech companies suggest that hyperscalers remain in build-out mode. We expect annual AI-related capex to rise to nearly USD 1tr next year, and such spending against the backdrop of capacity constraints across the AI supply chain points to further gains in the AI-led part of the market. While risks of slower capex growth have risen, we believe growing AI demand and accelerating cloud revenue growth should continue to provide a solid foundation for AI-related earnings growth.

A catch-up from cyclical sectors could broaden the rally. Robust earnings growth from other parts of the market should also drive stocks higher. While fresh headlines from US-Iran peace talks may weigh on market sentiment, the gradual resumption of traffic through the Strait of Hormuz and lower energy prices should support recovery in cyclical sectors across regions as cost pressures ease and supply visibility improves. In the US, a resilient economy, a solid labor market, and strong credit creation should all bolster earnings outside the AI complex.

Central bank policies should not be an obstacle to further equity gains. Tighter monetary policies remain a concern for investors, but we do not expect major central banks to hike rates aggressively. In fact, we don't expect expect the Federal Reserve to hike rates this year, as inflation should moderate in the coming months, the labor market is not overheating, and softer growth conditions should re-emerge in the second half of this year. The introduction of multiple task forces by Fed Chair Kevin Warsh also signals a slower policy reaction in the near term. In Europe, the latest inflation data and the energy backdrop have reduced the pressure for an extended hiking cycle, and we believe that any further tightening from the European Central Bank is likely to be delayed, limited, and data-dependent.

So, we retain a positive outlook for global equities and expect a further broadening of market leadership during the next phrase of the rally. Investors should ensure diversified exposure to stocks across sectors, regions, and themes. Those looking for ways to navigate potential volatility can also consider capital preservation strategies.