Hartmut Issel

Value-up programs across Japan, South Korea, Singapore, and now Indonesia are a powerful structural driver for equity markets, providing opportunities beyond the AI theme in the region.

If the AI bubble collapses, the most vulnerable beneficiaries are Taiwan and South Korea due to their deep integration in the semiconductor supply chain. Taiwan's GDP could be hit by 4% and South Korea's by 2%, with exports, investment, and fiscal revenue all at risk.

AI demand shows no sign of letting up, hyperscaler cloud revenues are accelerating, capex plans are not being cut. UBS remains slightly overweight semiconductors and sees continued strength in the second half.

MSCI China is about 50% tech, and AI cloud revenue growth has accelerated strongly (double digits, sometimes over 30%). The market is currently pricing in different fears, but over the next 12 months it will recognize that China tech is not expensive and AI demand remains strong.

The market is overpricing how aggressive central banks will be. The Fed will likely cut rates later this year given the economic dampening effect of the oil shock. Short-term bonds at current relatively high levels offer good entry opportunities.

You should have gold in your portfolio so it really mixes it out. Even when we get solutions in the Middle East, we have a midterm election coming up, and in view of the Fed going down more, you would expect the demand for gold to be relatively strong. Equities and bonds are both vulnerable to the current mix of sticky inflation and geopolitical shocks. Gold serves as a necessary non-correlated asset that will attract capital as investors seek a safe haven from both Middle East volatility and US domestic political uncertainty. LONG because compounding macroeconomic and geopolitical risks require a third pillar of portfolio protection outside of stocks and bonds. A massive spike in real interest rates that increases the opportunity cost of holding non-yielding gold.

As the world's largest oil and gas producer, the US may gain a relative advantage when we see some of the energy facilities in Saudi, Qatar, or Israel face disruptions. High energy prices act as a tax on importing nations (like Japan and European countries) but benefit the US economy. This dynamic, combined with sticky US inflation keeping Treasury yields high, will drive capital flows into the US Dollar at the expense of foreign currencies. LONG because the US Dollar offers a dual advantage of high yields and energy independence during a Middle East supply shock. The Fed aggressively cuts rates despite inflation, or a rapid collapse in global oil prices.