Global "grouping" in US stocks, US stocks "grouping" in AI
In the past month, approximately $30 billion in new funds flowed into equity funds globally, with as much as 94% going into US assets; in the first quarter, overseas investors purchased $187 billion in US corporate bonds, a year-on-year increase of 61%
Despite facing debt issues and political divisions brought about by the elections in the United States, under the dual pressure of European election stress and the Bank of Japan's delay in announcing details of balance sheet reduction leading to no reduction in the risk of the yen exchange rate, global investors have been flocking to U.S. stocks and bonds.
This week, the S&P 500 index posted its highest weekly gain in the past 15 months. At the same time, the yield on U.S. long-term government bonds also rose to 3.5%, marking its best performance since 2024.
In the U.S. stock market, as Apple, Microsoft, and NVIDIA, the three "3 trillion giants," successively hit historic highs in market value, AI/technology-related companies have become the "top target" for fund clustering. Sameer Samana, Senior Global Market Strategist at Wells Fargo Investment Institute, stated:
"The U.S. has a group of AI/technology-related companies that are unmatched elsewhere in the world...
(Therefore, the attractiveness of the U.S. market to global investors) may continue for a while until these factors change or suitable alternatives emerge."
Que Nguyen, Chief Investment Officer of Stock Strategies at Research Affiliates, believes that there are risks in chasing returns from U.S. stocks in the context of the extremely high weight of the largest technology companies:
"We have entered an era where big companies are getting bigger, and it is unclear whether this situation can be sustained...
The dominance of large U.S. companies will face challenges and potential threats from smaller companies or overseas competitors."
Global Investors Flocking to U.S. Stocks and Bonds
Despite the Federal Reserve hinting at slowing down the pace of rate hikes and the intense uncertainty brought about by the U.S. elections, global investors continue to pour into the U.S. market.
Data compiled by TD Securities from EPFR Global shows that in the past month, approximately $30 billion in new funds flowed into equity funds, with as much as 94% going into U.S. assets, especially in the technology sector, and the indicator measuring investor preference for U.S. stocks hovering at a three-year high.
International investors are also showing high interest in the U.S. credit market. Torsten Slok, Chief Economist at Apollo Global Management, stated that in the first quarter of 2024, foreign investors purchased $187 billion in U.S. corporate bonds, a 61% increase year-on-year.
Outside of the U.S. market, the MSCI Global Index (excluding the U.S.) fell by over 2%. Lack of detailed information on the bond purchase program by the Bank of Japan put pressure on the yen; the situation in Europe is even worse, with the French stock market experiencing its largest decline in over two years after French President Macron decided to hold early elections, wiping out all gains made in 2024.
Ulrich Urbahn, Head of Asset Strategy at Berenberg, commented:
"The U.S. has the largest and most innovative companies, strong profit growth, and also benefits from the country's current 'safe haven' status
Momentum will breed momentum. FOMO (Fear of Missing Out) is obviously also a reason."
US Stocks "Grouping" AI, Market "Top-Heavy"
In the US stock market, AI/technology-related companies have become the "primary target" of fund grouping. According to data compiled by EPFR Global and Bank of America, inflows into the US technology sector reached $2.1 billion this week, the highest level since March.
Data shows that the only sector in long-term US equity mutual funds that has increased its exposure this year is technology. According to data compiled by Barclays Bank strategist Venu Krishna and others, the underweight positions of banks, healthcare, and non-essential consumer goods companies in these portfolios have been increasing.
At the same time, as the concept of Mag 7 gradually fades away, with the high-weighted Apple, Microsoft, and NVIDIA, the "3 trillion giants" taking the stage, the "concentration risk" in the US stock market seems to be increasing, and market differentiation is becoming more apparent. Financial blog Zerohedge commented:
"Now it seems that only the top three tech companies - Apple, Microsoft, and NVIDIA - are important, with their market values almost the same, all around $3.2 trillion... In fact, there is nothing more important than these three companies now."
Data shows that despite the S&P index hitting a new all-time high four times this week, the equal-weighted S&P has not changed in the past 4 months.
This phenomenon is not only present in the comparison between tech stocks and non-tech stocks. Even within the tech sector, there are astonishing divergences - for example, on Thursday, 72% of Nasdaq components closed lower, with the number of stocks hitting new lows more than twice the number hitting new highs, yet the Nasdaq still hit a new high that day.
And the equal-weighted Nasdaq index has performed poorly on 9 out of the past 10 days.
