00:00There has been some development on the technological front in terms of energy generation, power generation
00:06that allowed companies to up their capex spent, right?
00:11So, for example, this idea of behind the meter power generation that doesn't require great connection
00:16and energy was one binding constraint.
00:19So as we see that improving on the margin, we see companies feeling a bit more comfortable with guiding up
00:26capex
00:26and valuation has become cheaper compared to before.
00:29Tech has fallen back in line in terms of valuation versus broader markets.
00:33Earnings are strong, so we're overweight.
00:36Overweight in all parts of AI.
00:38Again, there are questions.
00:38You know, we have the new model by DeepSeq.
00:40There's this big race between LLM models.
00:43Is that too dangerous?
00:44I mean, does it really make a difference who comes on top?
00:47It does over time.
00:48And I would say right now we're specifically overweight semis and hardware
00:53because when it comes to the application layer, so right now we're in the build-out phase,
00:58but when it comes to the application phase, I think the jury is still out.
01:02Who is going to win?
01:03Is it the ultimate kind of model provider and compute provider,
01:08or is it going to be the provider of data, IP, and patents, right?
01:12So I think on that front, jury is still out,
01:14but the enormous amount of kind of power and commitment that we have seen so far already
01:20keeps us overweight broadly on AI and U.S. equities.
01:23Wait, are U.S. equities despite the volatility in the price of oil
01:27and the fact that we don't really know where this conflict is going?
01:30Well, that's actually really remarkable because if we do a mark-to-market versus pre-war,
01:36oil prices like 50% higher, net gas prices significantly higher,
01:42especially in Europe and APEC, and rates are quite a bit higher front-end and back-end,
01:47right, to the tune of a 40 basis point in U.S. and also in Europe,
01:51and yet risk assets are holding up really well.
01:55U.S. equities up mid-single digits because of the perceived
01:59and also actual energy-independent spreads have been holding up really well
02:03throughout the whole of this conflict.
02:05That really makes the current market backdrop feel a bit easy
02:10and make our overweight risk position feel a bit uneasy
02:14because the straits remaining closed is a big risk.
02:20Having said that, we have seen very clear evidence of economic incentives
02:25to resolve the conflict, right, because both parties,
02:29all parties have really fallen short of major kind of escalation every single time.
02:35And in terms of the accrued macro damage we're talking about,
02:38up until now to the tune of 0.2, 0.3% to global GDP,
02:43more heavily concentrated in Europe and APEC, less so in the U.S.,
02:47which is why even before we have clarity in terms of kind of the resolution of the wall,
02:53we were able to dial up risk two weeks ago by upgrading U.S. and emerging market equities.
02:59The last thing I would say is that markets can only focus on one thing at a time
03:02and right now it's earnings and earnings are good.
Comments