- Bonds get an October boost: US, Japanese and German 10-year sovereign bond yields broke their steady upwards march despite sticky inflation, falling around 0.2% from end-September. US trend growth of ca. 2% and US core inflation, expected to ease towards 2.6%, gives us a target 10-year US bond yield of around 4.75%, versus the current 5% yield.
- AI top or just a correction? The global technology sector sold off 4% over October as concerns mount over funding for the investment buildout. We see this as a short-term correction rather than a peak, given strong earnings growth and rising AI token demand and GPU rental prices. AI is a mega-boom punctuated by mini-busts; Positive on technology exposure.
- Defensive rotation in stocks: Global consumer staples and health care rallied sharply in October as bond yields declined and investors sought shelter from the correction in the AI trade. Investors are actively trying to determine the long-term winners and losers of AI, leading to a sharp sell-off in selected technology themes.
- Commodities bull market rolls on, fuelled by energy: Brent crude oil at USD110/barrel, record-high diesel refining margins and rising Europe natural gas prices drove a 9% monthly gain in the Bloomberg energy index. Positive on industrial and precious metal exposure.
- Oil prices, climate accelerate electrification: while the bull case for growing global electricity demand has been focused on the AI data centre buildout, the reality may be more prosaic. High diesel and natural gas prices plus summer heatwaves are key drivers of electricity demand via electric/hybrid cars and air conditioning. Buy the electricity infrastructure theme.
Edmund Shing
Chief Investment Officer
