Summary of Key Points
Recently, the global AI sector has experienced a collective decline (for example, the KOSPI 200 index in South Korea has fallen by 21% since July). Yao Yuan, an expert from东方汇理, believes that while AI remains a disruptive opportunity in the long term, caution is needed in the short term due to overbought conditions in the sector and tight cash flows among cloud service providers. The investment style in AI is shifting, with a move away from hardware towards markets that have underperformed previously. Hong Kong stocks (H-shares) have the potential for a rebound in the second half of the year. In light of geopolitical conflicts, it is advisable to allocate investments in physical assets such as energy and metals, as well as to hold gold in the long term.
Detailed Analysis
1. Why be cautious with AI in the short term?
Although AI represents a positive trend for the long term, there are significant risks at present:
- Excessive buying leading to a bubble: The AI sector has been on the rise for the past four to five years, with many indicators showing signs of overbought conditions. This is similar to a popular milk tea shop with long queues and prices far exceeding costs, which can lead to a correction.
- Large companies running out of funds for AI investment: Major cloud providers like Amazon and Microsoft are experiencing negative free cash flows. To continue building data centers and purchasing chips, they rely on fundraising through stock offerings or borrowing. However, financing can be challenging: poor market sentiment makes it difficult to raise capital, and rising interest rates increase the debt repayment pressure. When these companies' financial resources tighten, it affects their downstream partners, much like a lack of water upstream leading to dried-up rivers.
- Experts recommend avoiding a full commitment to AI investments in the short term, maintaining a balanced position, and implementing risk hedging strategies.
2. Is the focus on AI shifting to different areas?
The hotspots within the AI sector are constantly changing:
- 2025: The focus will be on large companies—tech giants like Microsoft and Apple, as well as heavyweight technology stocks in Hong Kong.
- Recent months: The focus has shifted to hardware, with semiconductors and memory chips becoming highly sought after, driving strong gains in South Korean and Chinese Taiwanese stock markets (the KOSPI 200 index once rose by over 100%).
- Current situation: The trend is shifting again—South Korean stocks are declining, while the M7 group of American tech companies remains stable, and Hong Kong technology indices are rebounding. Experts predict that markets that underperformed earlier (such as Hong Kong and the M7 group) may see a recovery, while those that have risen excessively (such as hardware and South Korean/Taiwanese markets) may experience adjustments.
3. Can Hong Kong stocks turn things around in the second half of the year?
Hong Kong stocks have performed poorly this year (with the Hang Seng Index falling by 5.66% and technology indices falling by 15%), but there are opportunities in the second half:
- Reasons for the decline: Four main factors: ① Hong Kong markets are more sensitive to overseas volatility (e.g., Fed interest rate hikes); ② The investment style in AI has changed, with a preference for small-scale hardware technology companies, which are less common in Hong Kong; ③ Profitability of major Hong Kong tech companies is weak due to the economic downturn; ④ High opportunity costs compared to other markets (such as Taiwan and South Korea).
- Reasons for potential gains: Conditions need to be favorable: a weakening US dollar (making Hong Kong stocks more attractive), lower US Treasury bond interest rates (reducing borrowing costs), and a easing of the Middle East situation (decreasing uncertainty). Additionally, if major Hong Kong tech companies see a bottoming out in profitability (e.g., after price wars in the delivery industry or with policy support for economic recovery), this could lead to a rebound.
4. How to hedge investments during geopolitical conflicts?
Geopolitical conflicts (such as those in the Middle East) can lead to stagflation—economic stagnation accompanied by rising prices. In such times, both stocks and bonds tend to perform poorly.
Experts suggest moving away from traditional asset classes and investing in physical assets:
- Energy and metals: Such as oil and copper/aluminum, which can hedge against inflation (their prices rise with rising commodity prices) and provide diversification. For example, energy stocks performed well during previous geopolitical conflicts due to increased demand for oil.
- Gold: A long-term investment option, with less than 3% of global portfolios currently allocated to gold, indicating room for growth. Although gold prices have temporarily declined due to a strong US dollar and high US interest rates, there is macroeconomic support (e.g., central banks purchasing gold). Experts predict that gold could reach $5,500 per ounce by December (currently around $4,000).
5. Can we still invest in AI in the long term?
Yes! Experts emphasize that AI is one of the most disruptive technologies of our time, and it is essential to include it in investment portfolios. The key is to distinguish between long-term holding and short-term trading: holding AI assets for the long term is feasible, but avoid chasing high prices in the short term and wait for market adjustments before making new investments.
(Note: The expert's views represent personal opinions and do not constitute investment advice.)