Amundi, one of Europe's largest asset managers with assets under management of €2.4 trillion (approximately $2.8 trillion), has indicated that the current rally in Asian technology stocks, driven by artificial intelligence (AI), still has potential for further gains. However, this trajectory could be challenged by a shift in expectations for U.S. interest rates, which would impact the hyperscale cloud computing companies underpinning the current investment cycle.
Alessia Berardi, the firm's Global Head of Emerging Markets Strategy, commented on the record-breaking surge in tech firms from South Korea and Taiwan, including Samsung Electronics and SK Hynix, stating: "We do not see this as a bubble."
"Market expectations for these companies' earnings are very high. Looking at the profits they are expected to generate in the future, the current valuations could still be justified," she explained. This suggests that the elevated share prices and the market's high demand for profit growth are unlikely to abruptly end the uptrend for Asian semiconductor, hardware, and supply chain companies in the near term.
With global spending on AI infrastructure projected to reach $5 trillion by 2030, suppliers providing the core hardware for these networks still possess significant upside potential.
The scale of the rally in emerging market tech stocks reaching new highs is particularly striking. Even after a nearly 7% drop on Friday, South Korea's KOSPI index has still nearly doubled year-to-date, with individual stocks like SK Hynix and Samsung Electronics far outpacing the broader market. Technology stocks have been the primary driver behind the 25% gain in benchmark emerging market equity indices this year.
Nevertheless, whether this momentum can be sustained ultimately hinges on whether U.S. tech giants will continue to expand their AI-related expenditures. This investment cycle is highly dependent on the policy path of the U.S. Federal Reserve.
Currently, traders have begun positioning for the Fed's next move to be an interest rate hike in response to persistent, stubbornly high inflation. If U.S. Treasury yields continue to rise, it would increase corporate financing costs and raise the hurdle rate for investment returns, potentially challenging AI-related capital expenditure.
"The overall outlook remains highly dependent on the U.S. investment cycle," Alessia Berardi stated.
"U.S. interest rates and bond yields remain crucial for technology investment, and any change in expectations regarding Fed policy could ultimately affect the trading dynamics for Asian tech stocks."
Beyond Asian equity markets, Alessia Berardi currently expresses greater optimism for local currency bonds in Latin America. Within emerging European markets, Hungarian local currency bonds and the Hungarian forint are among her top investment picks.
She also noted that despite the shocks to global markets from the Middle East conflict and high oil prices, a significant number of emerging market economies have demonstrated considerable resilience. Their policymaking capabilities and fiscal positions are, in many cases, even stronger than those of developed economies.
"Today, the competition between emerging market assets and developed market assets is intensifying," she said.
"The convergence trend between emerging and developed markets is still expected to continue, as many emerging market countries still possess ample policy buffers."
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