Yu argues that investors should broaden their exposure rather than crowd into the same narrow sectors that have defined markets in recent years. In his view, the world has moved on from a period when US technology stocks were effectively the only source of growth.
US exceptionalism has never gone away, and the US retains many inherent advantages, but Yu believes earnings growth is now broadening across regions, while valuations outside the US remain lower. This, he argues, supports wider diversification across markets and investment styles.
He also says the current backdrop favours companies with strong earnings, visible cash flows and sensible valuations. Inflation, a higher cost of capital and the threat of AI disruption are putting pressure on long-duration growth stocks, particularly where profitability lies far into the future.
By contrast, businesses with near-term free cash flow and stronger balance sheets are becoming more attractive. Yu says this is apparent in areas linked to physical scarcity, including memory, semiconductors, commodities and energy.
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At the same time, Yu says investors should have some defensive investments in their portfolio. “Given the tail events, continuing to have some defence in the portfolio is very important,” he says.
He defines that defence less by sector labels than by company characteristics such as repeatable earnings, lower leverage, pricing power and valuation discipline. Utilities and some dividend-paying names still have a role, but he also points to selected semiconductor exposures where scarcity and earnings visibility can provide a cushion.
John Lin, AB’s CIO for emerging markets value equities and China equities, makes the case that emerging markets (EMs) still look compelling on basic investment grounds: low valuations, weak ownership and improving earnings. “The reason valuation is low is because nobody owns it,” he says. In his view, years of capital flowing disproportionately into US assets have left emerging markets under-owned and therefore cheap.
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With earnings in EM improving rather than deteriorating, the region is looking more attractive. “If earnings go up, share price over time should go up as well,” he says, adding that this is the key reason emerging markets can continue to perform. The opportunity is not just in headline growth, but in the kind of growth investors are being asked to pay for. Value investors, he says, are better placed in an environment where returns can be derived from the next five to 10 years of cash flow, rather than distant terminal value assumptions.
Lin also sees a strong case in the manufacturing and materials sectors driving AI build-up, given that emerging markets are a key global manufacturing hub. Rather than developing large language models, many EM companies are supplying memory chips, printed circuit boards, and industrial components for AI infrastructure. He says these businesses, together with banks and commodity producers, offer more visible earnings paths than more speculative growth names.
Within Asia, Lin highlights Korea and selected China-linked materials names as areas of interest. Korea is benefiting from AI demand, industrial order shifts and governance reform, while China continues to offer bottom-up opportunities in areas such as metals and commodities, and chemicals.
Fixed income views
Diwakar Vijayvergia, AB’s co-head of Asia fixed income, says the immediate concern from investors is stagflation. He acknowledges that higher oil prices will affect economies, but the duration of the shock matters as much as its intensity. AB does not see a recession or entrenched inflation as its base case. “Our internal assessment is still that we are going to see a couple of rate cuts in the next 12 to 18 months.” He adds that those expectations could change if the situation worsens, but for now AB is not positioning for a full-blown stagflation outcome.
In Asia, Vijayvergia says the region is exposed because most countries are net importers of oil and gas, with Malaysia the notable exception. AB has an overall positive view of the country, but it is not invested there. Although the currency has performed well, offshore investors have limited access to the market.
Lin notes that AB is not invested in Malaysian equities, as valuations are high — not because of corporate earnings, but due to the “large permanent domestic buyer base in the form of Khazanah” that is constantly buying up the market and causing valuations to be elevated.
Despite this, Vijayvergia argues that Asian economies are entering this period from a stronger starting point than in past episodes, even if policymakers have limited room to respond aggressively.
Meanwhile, he remains positive on Asia high yield, which he says has become more diversified and less tied to China property risk. “You can still make 8% for the next two years without taking much risk,” he says, referring to yield-to-maturity opportunities in the asset class. He notes that China’s real estate has shrunk sharply as a share of the index, while corporate funding conditions have improved.
