Transcript:

Hi, I’m Dennis Li, Associate Portfolio Manager at Morningstar Investment Management. Welcome to the Morningstar Market Minute, a video series every Friday, where we take a quick look at what’s been happening in financial markets, the economy, and other key topics. We’ll kick off by discussing key market events, the outlook from Morningstar, and how we position our portfolios.

This week, global equities showed mixed results. S&P 500 and Japan’s Topix touched all-time highs earlier in the week, while here in Australia our share market pulled back slightly. The Federal Reserve delivered the widely expected 25 bps rate cut, and markets are now expecting more easing of monetary policy ahead. In the technology sector, AI has once again taken the spotlight after Nvidia (NAS:NVDA) announced a $5 billion investment in Intel (NAS:INTC) and a $100 billion commitment to OpenAI. While AI could be a long-term growth engine, we think much of the optimism is already priced in and valuations for many AI names are not especially attractive.

Turning to emerging markets, equities there have gone up by more than 20% this year, led by a strong rally in Chinese equities, such as tech giants like Tencent (HKSE:00700) and Alibaba (NYSE:BABA). Their share prices have surged for a few reasons: First, the growth of AI has accelerated cloud adoption in China, where the cloud market is basically closed to the US hyperscalers. Second, there are reports that Alibaba and others are making their own in-house chips, which could reduce their reliance on Nvidia’s H20. And third, a weaker US dollar, and expectation of lower US interest rates are generally favorable for Emerging Market assets, and in China’s case, it sparks hopes of more powerful stimulus packages for the sluggish economy.

In our portfolios, Alibaba and Tencent have been our high conviction holdings. After their strong share price performance, and the re-rating of multiples as AI cloud companies, we think valuations are now less compelling than before. We have rebalanced and capitalised the outperformance. Having said that, we still see room for earnings to catch up, once consumer sentiment improves over there. For investors, the key is to stay diversified and size exposures appropriately taking reward and risk into account.

That’s it from me this week. Thanks for watching the Morningstar Market Minutes. See you next week.