Investment Monthly: Market rotation reinforces diversification across the AI ecosystem

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Market concerns over AI overspending have led a rotation from semiconductor and hardware stocks to hyperscaler and software stocks. We maintain exposure across the AI ecosystem to avoid being caught by rapid shifts in momentum. We remain optimistic about the long-term AI trend, which supports broadening earnings growth within and beyond the IT sector, including Energy, Materials, Communications and Financials across regions.

Despite elevated energy prices amid ongoing geopolitical uncertainty, the macro backdrop and corporate fundamentals remain favourable for equities. Bonds are driven by the fragility of the US-Iran peace agreement, surging AI investments and a more hawkish Fed Chair. Within bond markets, we prefer investment grade credit, given its higher quality and attractive valuations, with coupon income continuing to be the primary driver of total returns.

The UK’s new Prime Minister, Andy Burnham, is prioritising easing cost-of-living pressures, decentralising decision-making and increasing investment in public services, signalling that fiscal policy could become more expansionary. Gilt yields have moved higher and remain sensitive to fiscal policy and government borrowing. We expect the Bank of England to keep the Bank Rate unchanged this year. While the FTSE 100’s exposure to energy and defensive sectors provides resilience, limited catalysts for a more positive overall equity outlook warrant a neutral stance on UK equities.

https://www.hsbc.com.my/wealth/insights/asset-class-views/investment-monthly/market-rotation-reinforces-diversification-across-the-ai-ecosystem/

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Publish Date: Fri, 31 Jul 2026, 12:01 PM

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