Rising oil prices and increasing U.S. Treasury yields are contributing to greater volatility in global markets, but institutional funds have not significantly withdrawn from the stock market. Many institutions believe that as long as economic growth and corporate profit expectations remain intact, the main investment themes related to AI are not disrupted.
U.S. debt and oil prices drive up volatility
U.S. 10-year Treasury yields rose above 5% on Tuesday, and the selling of government bonds around the world continued as a result. Meanwhile, affected by the supply shocks caused by the Iran war, international oil prices remained above $100 per barrel.
Despite rising interest rates and energy prices, the world's major stock markets have still seen overall gains this year. The S&P 500 index has risen by more than 10.8% over the year, the Nasdaq Composite Index has increased by 11.8%, and the Dow Jones Industrial Average has risen by 8.4%. Stock markets in South Korea, Japan, and Europe have also strengthened simultaneously.
Fund managers still over-allocate to stocks
A latest global fund manager survey by Bank of America shows that the over-optimism that emerged during the summer has cooled down to some extent, but investors remain generally positive about growth and profit prospects, and expect AI spending to continue to remain high.
The survey covered 170 investors managing a total of $470 billion in assets. The results show that in September, 49% of fund managers still had a net overweight in global stocks. Although this figure has slightly decreased from the previous month, stocks remain the most common overweighted asset. In contrast, bond allocation has dropped to its lowest level since May 2022.
Institutions continue to bet on AI expenditures.
BlackRock Investment Institute stated that an increase in yields does not necessarily conflict with a bullish view on risk assets; the key lies in why the yields are rising. If higher yields reflect stronger investment and growth, then stronger profitability can partially offset the pressure of rising financing costs. Based on this judgment, BlackRock continues to overweight U.S. stocks and AI related assets.
BRI Wealth Management, the investment director, stated that the "gold rush" sentiment surrounding AI implies that the market will re-evaluate its investment directions periodically. She believes that the current doubts may not necessarily disrupt the AI narrative, but the market could experience a period of pause and repricing.
Federated Hermes Senior Investment Analyst Tej Sthankiya stated that the recent decline in the AI sector has created opportunities for long-term investors. However, he pointed out that short-term risk appetite is still significantly influenced by interest rates, oil prices, and geopolitical situations. At the same time, the expansion of AI data centers is still constrained by key semiconductor wafers and power supply, and there is no sign of these bottlenecks being significantly alleviated in the short term.
UBS Global Wealth Management's Chief Investment Officer Mark Haefele believes that what the market should be more concerned about is not whether the development of cutting-edge technologies will slow down, but whether the demand and commercialization of AI can continue to expand. He stated that stricter AI security measures may change the competitive landscape of the industry, but the proposals currently put forward are not sufficient to indicate that the cycle of AI capital expenditure has ended.
