Hiba Mouallem
Hello and welcome to another weekly podcast by BNP Paribas Wealth Management. Today we will be talking about tech stocks. In particular we’ll be discussing what investors can look into if they want to diversify away from US tech stocks. I am Hiba Mouallem, investment strategist, and I'm joined today by our Global Chief Investment Officer, Edmund Shing. Hello, Edmund.
Edmund Shing
Hello, Hiba.
Hiba Mouallem
Edmund, since April, the S&P 500 index has surged to new highs. What are the main reasons for this increase and how do non-US investors view this?
Edmund Shing
Well, what are the main drivers? Since April we've seen a very strong rebound in US stocks led principally by everything around AI. As you know today the S&P is more and more an AI-dominated index. The Magnificent Seven represent over 35% of the S&P 500. If you add other sectors linked to AI, it's probably approaching 50%. So very much the excitement about artificial intelligence, about technology is clearly the main driver today. But what I would say is while you get excited about the S&P, let's not forget that on common currency terms, whether you are looking in terms of dollars, euros, whatever currency, on the same common currency terms, the rest of the world has done a lot better than the S&P since the beginning of this year.
Hiba Mouallem
So the S&P seems to have become a tech and specifically an AI-dominated index. Although AI has been a very interesting subject recently, investors always search for diversification in their portfolios. Are there any interesting themes that you would recommend if someone would like to invest in US stocks, but not necessarily in tech stocks?
Edmund Shing
Yes, of course. I mean, even if you want to invest around the AI theme, but not directly in technology stocks, you could look at a number of themes. Firstly, the increase in power demand. We know that with the installation of many more data centres, in order to drive these AI models, you're seeing a huge increase in electricity demand in the United States, in China, pretty much everywhere, which demands an increase, of course, in power generation and power transmission capacity. So one idea is to invest in that infrastructure, electricity transmission and generation infrastructure. And indeed, if you look at funds and ETFs that implement this theme, they have performed very well and outperformed the S&P this year. So that's one way to play AI indirectly through different sectors.
A second way would indeed be to look at other themes in the US, such as industrial renaissance. President Trump has talked several times about wanting to re-industrialise the US. And clearly a weaker dollar, and the hike in tariffs are two policies that should favour this re-industrialisation. And on top of that, of course, as we've said, everything around this massive wave of capital investment by tech companies into everything related to AI and data centres should also help this re-industrialisation effort. So that's another theme which focuses principally on industrial and manufacturing sectors. That is another theme that has performed very well, and has largely outperformed the S&P this year.
Hiba Mouallem
And is there any other theme apart from those two that you mentioned that could be also interesting for clients?
Edmund Shing
Well I do think so. I think if we get completely away, we can think about sectors that can potentially benefit from AI by being an early adopter of the AI technologies and models. One sector I particularly like is healthcare, but particularly biotechnology. Why biotechnology? Because I like the fact that if you think about who's going to benefit in terms of a step change, in terms of business model, it's going to be healthcare, both in terms of diagnostics, but also in terms of discovering new medications, new treatments. And that's where biotech comes in, because I will clearly help the hunt for these new medications, these new drug candidates. We can see it happening. And indeed, the biotech sector is starting to perform very well finally, after long-term underperformance.
Finally, again, I would go very much to the front of the queue. There is no technology without strategic metals. Now, by strategic metals, we can mean copper for the wiring. We can talk about silver for the electrical connectors, tin as well for the solder or indeed rare earth metals, which as we know, are used everywhere in technology, like magnets, for instance, and also in defence applications.
So I would say metals and mining, particularly those companies involved in the extraction of strategic metals like copper, silver, tin, rare earth metals, I think are also a good way. Again, the US metals and mining sector has massively outperformed the S&P this year. And I think, again, as part of this refocusing of the US government on the production of these strategic metals to underline their defence and technology superiority, this has become a very hot theme, a very hot sector, and one I think that still has plenty of upside.
Hiba Mouallem
So if I can summarise for those who would like to invest in US stocks, but also to diversify away from technology, three or even four suggestions can be available. The first one is the renaissance in US manufacturing. The second is investing in power demand growth. And the third: metals and mining, which are back in vogue. And finally, the healthcare sector. Thank you, Edmund, for this information.
Edmund Shing
Thank you Hiba.
Hiba Mouallem
And I would like to thank our audience for listening to this podcast. Please like, share and subscribe to our series of podcasts. Until next time, goodbye.