Charlotte DE KERPOISSON
Hello and welcome to this podcast by BNP Paribas Wealth Management. My name is Charlotte Poisson. Today I'm joined by Edmond Sheng, Global Chief Investment Officer, to discuss his investment strategy for November 2025. Hello? Edmund.
Edmund SHING
Hello, Charlotte.
Charlotte DE KERPOISSON
October was a volatile month for stocks and commodities, with the surge in US-China tensions and also concerns about US private debt markets. Nevertheless, stocks generally posted gains over the month, with the French index the CAC40 surprisingly reaching a new all-time high. Sir Edmund, are you still positive on exposure to global stock markets?
Edmund SHING
Yes, although I have to say I'm a bit nervous. I'm a bit nervous because I do feel that, particularly when we look to the US, everything seems to be dominated by one thing, which is artificial intelligence. The Magnificent Seven continue to perform extremely well, but they are changing nature. They are investing more and more, particularly in AI related data centers, to the point where they're actually not just funding this investment through free cash flow that they generate. But even in our borrowing money in the debt markets for the first time, we've recently had new bond issues, both from alphabet, the parent company of Google, and also from meta, suggesting that the investment is so heavy that they cannot sustain it simply through free cash flow. That worries me because they are changing fundamentally their business model from being what we call “a capital lite business model”, which implies high profitability but low need for investment to now, one where the need for investment is massive. In contrast, we know historically that companies whose investment needs are heavy over time tend to perform worse than companies for capital loads. So that worries me, that fundamental shift in their business mix. Having said all of that, even if we were to compare today to 2000 and say, look, there was a technology bubble 25 years ago, are we going through the same thing again? You might argue, yes. But even if you were to argue that you don't know where we are in the progression of that trend, you could be at the end. We could be the middle, could be somewhere still near the beginning. If, for instance, we were in something like 1997, which is more nearer the beginning to middle of this trend, that would suggest we still have several years to go. And if that were to be the case, this is not the time to say forget tech, don't invest in stocks, be very defensive. The risk is in going defensive. Fall too early in fact. So today I would describe myself as a nervous bull. There are obviously all the reasons you've mentioned to be nervous, including, as I said, the potential AI bubble that could be forming. I don't think it's a fully formed bubble yet. I think there's still a way to go. And on top of that, there are plenty of fundamentals that remain favourable in terms of liquidity, in terms of the progression in earnings. If we can look at the the latest quarterly results, they were very good in the US and pretty solid in Europe as well for companies. And so there are a number of reasons why you should stay positive stock. So despite all of the worries, despite my nervousness, we are positive global stocks today.
Charlotte DE KERPOISSON
There have been concerns recently over private credit following issues surrounding First Brands and tricolour in the US. Edmund, are you concerned?
Edmund SHING
Of course I'm concerned. You should always be concerned. One of my jobs is always to take any new form of risk very seriously. But the question is, is this a systemic risk? Is this going to spread? Is it a wider problem within the private debt market? And is this something that could potentially spread beyond the private debt market, even to public financial markets? If it goes from the private debt market to the public debt market, it will infect all financial markets eventually, including stocks and other. So that's the question. Are we looking at several isolated examples of problems, or are these just the symptoms of a wider generalised problem? For now, I would say idiosyncratic instances of problems. It's not something you could generalise across the whole private debt industry. Now, there are concerns because the private debt market as a whole, in terms of size has tripled since 2008, which is a lot in less than 20 years. You have a market that's tripled in size. Evidently, the risk is that in order to find enough loans and bonds to satisfy this demand, that certain private credit funds have taken on assets which maybe they shouldn't have taken on, which are lower in quality and maybe haven't done their entire due diligence. And this might be why you're getting issues like Tricolor and First Brands today. However, I think the big issue will come if whenever we get a recession, because when you look at credit markets, you look at history, you've had a rise in bankruptcy rates and in default rates with corporate credit in times of recession. So when the economy slows dramatically, that's when you tend to get the real problems coming out in the credit markets. At the moment, we're not there. The US economy is still growing. The global economy is still growing. Yes, there might be a slowdown in US growth and progress, but it's still very much in positive territory. We're not talking about negative growth. So I don't see that these pressures and the bankruptcy rates will necessarily rise sharply. However, we are watching a number of indicators very closely, such as the performance of regional banks in the U.S., such as the performance of publicly listed business development companies in the US who do invest in private credit. We are also looking at the share prices of the listed fund providers that provide private equity private credit funds, and we will see how these different indicators develop. If they develop unfavourably, i.e. they start to fall off a cliff, then of course we will know to become more defensive. But at this stage I think it's something we're watching carefully, but it's not something we think will become systemic.
Charlotte DE KERPOISSON
After an impressive ascent, year to date, precious metal prices have started to fall back. So Edmunds should climb, sell or keep their physical holdings and silver and gold.
Edmund SHING
I've had a lot of clients ask me that because of course they've done very well in silver and gold in particular, and it's something we've been recommending for a long time. They've done very well. I mean, gold is still up despite the correction. It's still up over 50% in the year to date since January. Clearly, there is that temptation to take profits off the table. However, what I would say is that if you are a client who's using gold in part as a store of value and as a diversifying asset within the context of a broader diversified portfolio, including stocks, bonds, real estate and other assets. Then there isn't a good argument to sell it, because I think the reason you hold it is in case of weakness of the dollar. The reason you hold it, is in case of increased volatility in other assets. And those are still very much present. Geopolitical risk is still there. Volatility is still there. The dollar weakness we think will continue into next year. And on top of that, when you look at global central banks, they also did polarising by buying more gold to add to the central bank reserves. So that has been a very strong driver of the price of gold and for demand of gold. And that's still very much they have not slowed down their purchases in any meaningful way. So what I would say is a pause was to be expected after such a strong rise in the price of gold, it could last a bit longer. I think actually, if the gold falls back, you should be reinforcing your positions in gold as opposed to selling. So it should be a buy a weakness story as opposed to sell on strength. Because I do think in 2026 we're very likely to see higher gold prices.
Charlotte DE KERPOISSON
Long term US bond yields have surprisingly dropped. The ten year yield is now hovering at about 4% despite large US federal borrowing needs. Sir Edmund, what has caused this drop? And secondly, what impact is this having on other financial markets.
Edmund SHING
Yeah. So firstly, why has the bond yield surprisingly dropped despite the high borrowing need of the US government? This is a very good question. The answer is because the Federal Reserve is cutting rates and will continue to cut rates into next year. Remember that not only do we have some weakness in the US employment market, which is leading the fed to cut rates, there is also a lot of political pressure from the Trump administration for the FED to continue to cut rates. Remember, also in May next year, the FED President Jerome Powell, will be replaced as head of the fed by someone chosen by President Trump, who will very likely want to cut rates further, because that is what President Trump wants. And all of that is putting some pressure on bond yields on long term bond yields. Having said that, I think 4% is going a bit far. We have a target at 4.25% in 12 months. So we do expect the bond yield to actually go up a little bit. We think it's probably overshot to the downside in the short term, a little bit of an overreaction. So at this point we wouldn't want to be buying exposure to ten year US bonds because we think the yield is now too low. We would wait until the yield rises back in terms of impact on other markets. Well, obviously in particular it helps the stock market because the lower the long term bond yield, the lower the discount rate, the higher the valuation can be on the stock market. And so this is one of the supporting factors for global stocks and for US stocks in particular. You might argue that the US stock market is rather highly valued at the moment. But if the US long bond yield comes down, that valuation is better supported. So I'd say stocks are the primary beneficiary of these lower yields right now.
Charlotte DE KERPOISSON
And finally, Edmund what are your top investment ideas at the moment?
Edmund SHING
That's a very good question. We like stocks in the world. Ex-US. We still like sectors like European banks, for instance. We still like Japan. We still like Japanese equities very much on the currency hedged basis. And I think, uh, thirdly, still areas like European infrastructure, and US electric infrastructure look at very appealing thematic ideas for the moment.
Charlotte DE KERPOISSON
Thank you, Edmund, and thank you to our audience for following this podcast. Please like, share and subscribe to our weekly podcast and visit our website for our investment themes and research. Goodbye.