(June 5): Asia’s artificial intelligence (AI)-led stock boom has room to run further unless a shift in US interest-rate expectations rattles the hyperscalers underpinning the investment cycle, according to Amundi, Europe’s largest asset manager.
“We don’t see a bubble,” Alessia Berardi, global head of emerging markets strategy at the €2.4 trillion (US$2.8 trillion or $3.58 trillion) firm, said in an interview, referring to the record-breaking rallies in South Korean and Taiwanese tech companies such as Samsung Electronics Co and SK Hynix Inc. “Earnings expectations for these companies are very high. Relative to the earnings they are expected to deliver, valuations may still look fair.”
That suggests lofty share prices and demanding profit forecasts are unlikely to derail rallies in the Asian semiconductor, hardware and supply-chain firms, Berardi said. With spending on the AI buildout projected to reach US$5 trillion ($6.43 trillion) through 2030, hardware suppliers powering these networks still have significant upside.
The rally has been striking. Even with an almost 7% drop on Friday, South Korea’s Kospi Index is up nearly 100% this year and shares such as SK Hynix and Samsung have surged far more. Tech stocks have been the main drivers of this year’s 25% rally in the main emerging-equity benchmark.
Further gains now ultimately hinge on US technology giants continuing to ramp up spending on AI. That investment cycle is, in turn, highly sensitive to the Federal Reserve’s policy path. Traders are now betting that the Fed’s next move will be an interest rate hike to address stubbornly high inflation.
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A sustained rise in Treasury yields will raise borrowing costs and raise the hurdle rate for investments, potentially challenging AI-related capital spending.
“The outlook is still highly dependent on the US investment cycle,” Berardi said. “US rates and yields remain important for technology investment, and any shift in Fed expectations could eventually affect the Asia tech trade as well.”
Outside Asian equities, Berardi favours local-currency bonds in Latin America. In emerging Europe, Hungarian local debt and the forint are among her top picks.
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She noted that swathes of emerging markets have proved resilient to upheaval caused by the Iran war and high oil prices, with policymaking and fiscal positions often comparing favourably with their developed counterparts.
“There is now increasing competition between EM and DM assets,” Berardi said. “The EM/DM convergence trend can continue because many emerging markets, including China, still have policy buffers.”
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