*Includes internet retail, media & entertainment, and interactive media.
The outperformance this year of developed market equities relative to their emerging market peers is striking. It’s also counterintuitive given the expectations that China’s reopening would lead to outperformance of emerging market equities.
One explanation lies in the fact that interest in generative artificial intelligence (AI) has bolstered a rally in large cap tech stocks. The S&P 500 index has rallied 10% so far this year while the NASDAQ is up 27%.
Since the start of 2023 equities and specifically growth/tech stocks have rerated on the back of the fall in interest rates. This may reverse, however, if the market’s expectations for a near-term pivot from the Fed to cutting interest rates are disappointed.
Earnings for US tech stocks did come in better-than-expected whereas those of Chinese tech stocks were disappointing. It may be that the full impact of China’s reopening is yet to come.
Our multi-asset team would be more inclined to view any further rally in US equities as an opportunity to consider establishing an underweight position.