There is more room to run for artificial intelligence but avoid doubling down, especially on single stocks, said UBS Global Wealth Management’s Asia investment chief Min Lan Tan.
The S&P 500 Index is up more than 9% year-to-date, powered by the artificial intelligence (AI) bull, with the sector’s leading companies representing a record portion of the overall benchmark’s market capitalization. According to UBS, there’s room for more run in AI due to expectations of a continued rise in capital expenditure, an uptrend in GPU prices, and surging cloud revenues. However, the bank advises investors to exercise discipline as the rally broadens.
“So, our view is that don’t double down on your AI exposure,” said Min Lan Tan, head chief investment office APAC, UBS Global Wealth Management, during a media briefing on its mid-year outlook.
Single-stock concentration risk
While stock selection has driven performance for many equity portfolios this year and UBS expects this trend to continue, it also creates increases the risk of holding the wrong names. In an analysis of client investments on its platform, the bank observed that 40% of self-managed portfolios hold more than half of their equity in just 10 stocks or fewer.
It is now advising clients to adopt a barbell approach with an offensive portion on one side, which includes semiconductors and hardware, and a defensive portion on the other side, with data centres real estate investment trusts (REIT) and payment networks.
“The point that we are making to our investors is that this is a bull market to own, but you need greater discipline,” Tan explained, stressing that it is still overweight on AI, albeit to a lesser extent. “When the news flow changes, you have to change. That’s one. In other words, be very proactive in this trade, which is how we are managing it. And secondly, what’s your single-stock exposure? Because single-stock volatility has actually gone up a lot year-to-date, so don’t be overly concentrated in any single names.”
Outside US tech, UBS is also positive on a number of other areas for equities with a preference for Asia ex-Japan, Japan, Singapore, Australia, emerging markets, China, Switzerland, and Germany. By sectors, the bank also likes industrials, healthcare, European consumer discretionary, and China tech.
