(Oct 31): Chinese stocks and gold are the best hedges against a boom in the artificial intelligence trade that has pushed valuations to elevated levels, according to Bank of America Corp strategists.
The S&P 500 Index trades at 23 times forward earnings, well above its average of 16 over the past two decades. The so-called Magnificent Seven group of tech megacaps accounts for more than a third of the US benchmark’s weight. Valuations across this cohort are even higher, at 31 times forward earnings.
“AI equity leadership ain’t budging for time being and we like gold & China stocks as best boom/bubble hedges,” the BofA team led by Michael Hartnett said in a note.
That leadership has powered a rally that’s added US$17 trillion in value to the S&P 500 index since it bounced off an early-April low. Nvidia Corp, the chipmaker at the heart of the AI-driven stock surge, this week became the world’s first company with a US$5 trillion valuation.
Strong earnings in recent days from Amazon.com Inc and Apple Inc are boosting US equity futures on Friday. The market looks poised to rebound after a slump driven to an extent by a plunge in Meta Platforms Inc amid investor concerns that massive AI investments won’t pay off.
The BofA strategists said investors are positioning their portfolios for solid economic growth in 2026, expecting falling US interest rates and that President Donald Trump will step in with policies that support the market. Gold offers a hedge against the risk that easing policy and an expanding economy will fuel inflation.
See also: Asian equities, US futures rally as tech results lift sentiment
Bullion has recently retreated from all-time highs above US$4,300 an ounce, partly as investors assess progress toward a US-China truce to reduce trade tensions. The BofA strategists noted that outflows from global gold funds hit a record US$7.5 billion in the latest weekly figures, citing data from EPFR, following four months of inflows.
Meanwhile, Chinese stocks have outperformed the S&P 500 sharply this year, with the MSCI China Index soaring 33% amid optimism about the region’s ability to compete in generative AI following DeepSeek’s emergence. Some of the heat has gone out of that rally of late, with the index about to snap a five-month winning streak as some of the focus turns back to lingering US-China tensions and challenges facing the economy.
Hartnett and his team correctly bet on international stocks like those in Asia and Europe when Trump was elected, correctly betting that accommodative policy in these regions would fuel equity gains.
Uploaded by Magessan Varatharaja
