AI Boom Drives Market Leadership, Redefines Global Investment Strategy

​As artificial intelligence accelerates a new wave of productivity, global equity markets are realigning, with U.S. and Japanese equities leading the charge. This article explores how the AI revolution is transforming investment strategies across equities, bonds, currencies, and commodities.

U.S. Equities Regain Leadership Amid AI Boom

Key Trends Shaping Equity Performance

​Equity markets in 2025 have been driven by rapid structural change and intermittent volatility. U.S. equities have emerged as clear leaders, rebounding 22% from their April lows in a tech-fueled surge led by AI-driven companies. This strong rally makes U.S. stocks the best-performing group so far this year, outpacing returns in both developed and emerging markets.
 
The S&P 500 rose 2% last week alone, underscoring momentum in technology stocks. This reinforces the growing influence of artificial intelligence as both a near-term earnings booster and a long-term productivity driver. Year-to-date performance data highlights that U.S. equities have outperformed Europe, emerging markets, and commodity-linked sectors like energy and gold.
 
Emerging markets such as India show promise due to demographic advantages, while Japan stands out among developed markets thanks to corporate reforms and a return of moderate inflation. Japanese equities, in particular, are attractive for unhedged investors, as the yen has historically strengthened during global market stress. This positions Japan as a defensive play during turbulent periods.
 
Core Financial Pressures Impacting Equity Markets

Investors face overlapping pressures: persistent U.S. inflation, concerns over fiscal sustainability, geopolitical fragmentation, and tariff-driven disruptions. These factors are shifting capital flows and altering valuation frameworks across global markets.
 
Moody’s recent downgrade of U.S. debt highlights growing unease over fiscal deficits and rising debt-servicing costs. This has undermined investor confidence and increased the risk premium on long-duration U.S. assets. Although markets expect two Federal Reserve rate cuts this year, sticky inflation and a tight labor market may limit the Fed’s flexibility.
 
Trade tensions, especially between the U.S. and China, are weighing on emerging market growth prospects. While technology continues to drive equity rebounds, the broader economy remains vulnerable to supply chain disruptions and policy uncertainty. In Europe, increased defense and infrastructure spending could push up long-term yields, even if short-term rate cuts offer some support.
 
Equity Investment Recommendations
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• ​Investors should focus on regions and sectors with structural growth and resilience to volatility. The AI revolution, favorable demographics in select emerging markets, and infrastructure investment trends all present strategic opportunities.
  
• U.S. Equities (Overweight): Supported by robust earnings growth in tech and structural AI tailwinds, U.S. equities remain the anchor in global portfolios despite short-term policy noise.
• Japanese Equities (Overweight): Benefiting from economic reforms, rising inflation, and yen strength during market stress, Japan offers both growth and diversification benefits. Unhedged exposure is preferred.
• Indian Equities (Selective EM Allocation): India's young population and reform momentum align with long-term growth themes, making it a compelling option among emerging markets.
• Infrastructure Equity (Strategic): With global shifts toward digitalization and sustainability, infrastructure assets like data centers and transport hubs are well-positioned for long-term capital flows.
• Short-Term U.S. Treasuries & Inflation-Linked Bonds: While not equities, these fixed income instruments offer low-duration inflation protection and serve as tactical hedges in a volatile rate environment.

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Bond Market Faces Pressure from Inflation and Fiscal Strain

Key Trends and Visual Insights in Bond Markets

​Bond markets are being reshaped by rising term premiums, persistent inflation, and diverging credit spreads. Long-duration sovereign bonds, including U.S. 10-year Treasuries and German Bunds, have posted negative returns year-to-date.
 
In contrast, short-term investment-grade and high-yield bonds have delivered positive performance. This reflects investor demand for lower-duration instruments with more attractive risk-adjusted yields.
 
The U.S. 10-year Treasury yield has risen sharply to 4.45%, climbing over 50 basis points since early April. This reflects heightened term premium expectations and concerns about fiscal sustainability.
 
European credit markets have emerged as relatively more appealing. Wider spreads are offering better compensation for risk, particularly in investment-grade and high-yield segments.
 
In Japan, although government bond yields have increased, equities remain more attractive. This shift highlights growing opportunity costs and a change in investor preferences.
 
Financial Pressures Likely to Affect Bond Performance

Markets expect two Federal Reserve rate cuts before the year ends. However, sticky U.S. inflation may limit the central bank’s ability to ease monetary policy.
 
Moody’s downgrade of U.S. debt has heightened awareness of structural fiscal imbalances. Rising debt servicing costs could drive long-term yields even higher.
 
In Europe, trade-related uncertainty is expected to suppress inflation more than stimulate growth. This opens the door for additional rate cuts by the European Central Bank.
 
At the same time, increased infrastructure and defense spending could elevate long-term borrowing costs. The result is a more complex outlook for European sovereign bonds.
 
Emerging markets face vulnerabilities from global trade shocks and capital flow volatility. Local currency bonds are especially sensitive to external disruptions.
 
Bond Investment Recommendations
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• ​Investors should prioritize short-duration, inflation-protected, and high-quality credit exposures. These instruments offer resilience against interest rate and macroeconomic volatility.
• Short-term U.S. Treasuries provide liquidity and low duration risk. They are useful as tactical cash equivalents in volatile conditions.
• Inflation-linked bonds are preferred over nominal government debt. They protect against persistent inflation without excessive exposure to rate movements.
• UK gilts offer relative stability and fewer fiscal risks. This makes them more appealing than some European or U.S. long-duration peers.
• European credit—both investment grade and high yield—remains attractive. Wider spreads offer enhanced returns relative to U.S. equivalents.
• Private credit is gaining traction as banks retreat from lending. It offers compelling yields and portfolio diversification beyond public markets.

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Singapore Dollar Holds Firm as FX Divergence Widens

Major Currency Trends Relative to the Singapore Dollar

Global currency markets are being shaped by diverging monetary policies and persistent trade-related volatility. The U.S. dollar remains strong year-to-date, though recent fluctuations suggest weakening momentum.
 
The Singapore dollar has held firm, with the USD/SGD pair reacting to signs of upcoming Fed rate cuts and potential softness in U.S. policy. With two rate cuts expected this year, the SGD may gain further if the MAS maintains a steady stance.
 
The Japanese yen has renewed appeal during risk-off periods. As a historical safe haven, it often strengthens against SGD during times of global uncertainty.
 
Emerging market currencies like the IDR, MYR, and PHP are under pressure. Their sensitivity to trade shocks and weaker fundamentals make them more volatile relative to the SGD.
 
Year-to-date data shows the U.S. dollar index outperforming EM assets and gold. However, inflation and fiscal downgrade concerns raise the risk of a USD correction, potentially benefitting the SGD.
 
Pressures Influencing Currency Performance Against SGD

​Currency movements are increasingly driven by inflation divergence, policy shifts, and capital flow dynamics. The U.S. faces fiscal headwinds following Moody’s downgrade, raising doubts about long-term dollar strength.
 
Sticky U.S. inflation may limit how much the Fed can ease. In contrast, the MAS’s trade-weighted SGD policy could help strengthen the Singapore dollar further.
 
Trade tensions between the U.S. and China continue to dampen sentiment. In this context, SGD is positioned to outperform currencies like the CNY and IDR due to Singapore’s stable macroeconomic footing.
 
The Japanese yen remains preferred in unhedged positions. Its tendency to rise during global market stress supports its role as a counterbalance to SGD holdings.
 
ASEAN currencies are expected to stay volatile, especially as U.S. yields rise or geopolitical risks escalate. This enhances the SGD’s relative stability in the region.
 
Currencies Offering Relative Investment Opportunities vs. SGD
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• Monetary divergence and macro uncertainty create selective FX opportunities for SGD investors. The U.S. dollar offers tactical gains during volatility but faces structural challenges in the medium term.
• Brief USD rallies may occur during market stress, yet longer-term weakness makes it a candidate for sell-on-rally strategies against SGD.
• The Japanese yen is the clearest safe haven play. It provides portfolio diversification and is supported by evolving Japanese policy conditions.
• The Euro shows moderate upside potential. While ECB dovishness may weigh in the short term, reforms and fiscal support could lift EUR/SGD in the longer run.
• Emerging market currencies like the IDR, MYR, and PHP carry higher risk. Their trade exposure and capital flow sensitivity make them less attractive relative to the SGD.
• The British pound remains uncertain amid tax hikes and political risks. GBP/SGD may remain volatile until greater post-election clarity emerges.
• The SGD stands out as a stable, well-supported currency. Backed by prudent policy and a strong external position, it remains a solid anchor amid global currency fluctuations.
• Strategically, JPY and selective short-USD exposure are favored. These allocations align with safe haven preferences and Singapore’s disciplined monetary stance.

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Gold Remains a Defensive Anchor for SGD-Based Portfolios

Key Patterns Influencing Commodity Prices (Gold-SGD Relationship)

​Gold prices have remained relatively stable despite broader market volatility. In SGD terms, fluctuations in USD strength and inflation hedging demand have led to notable price movements.
 
Gold continues to serve as a safe haven asset, attracting flows due to its liquidity and non-yielding nature. Year-to-date performance shows gold delivering modest gains, outperforming crude oil and EM equities but trailing U.S. equities.
 
This trend suggests that gold is holding its value even as U.S. yields rise, reinforcing its relevance for SGD-based investors seeking stability. Its outperformance against high-risk assets underlines its role as a volatility hedge.
 
Although the U.S. dollar has outpaced gold this year, concerns over U.S. debt and fiscal imbalances could shift momentum. A weakening USD could further boost the SGD-equivalent price of gold.
 
Persistent inflation is capping the Fed's ability to cut rates, which affects real interest rates and gold’s opportunity cost. While some investors turn to infrastructure and private assets, gold remains attractive for its liquidity.
 
Financial and Geopolitical Pressures Shaping Gold and Other Commodities

Commodities are influenced by inflation uncertainty, geopolitical tensions, and diverging monetary policies. Gold benefits from these dynamics by acting as both a hedge and a liquid reserve.
 
Sticky inflation and fragmented geopolitics have driven up long-term risk premiums. This uncertainty increases gold’s appeal as an inflation and geopolitical buffer.
 
The U.S. debt downgrade by Moody’s has reignited focus on fiscal sustainability. For SGD investors, this enhances gold's role as an alternative to reserve currencies.
 
Global transitions—like the move toward low-carbon energy—are changing capital flows. Traditional commodities may see reduced investment, while demand for inflation-hedged assets like gold rises.
 
Ongoing trade tensions and tariff shocks add to gold’s appeal by highlighting its supply-invariant nature. With the USD term premium staying low relative to inflation, gold is increasingly favorable in SGD-denominated portfolios.
 
Recommended Commodities for SGD-Based Investors (Gold Focus)

• In today’s macro environment, gold stands out for SGD investors due to its inflation hedging, liquidity, and stability. ETFs such as SPDR Gold Shares or iShares Gold Trust provide clean exposure without FX mismatch risks.
• Gold mining companies or ETFs tied to stable producers in Canada and Australia offer additional investment avenues. These regions benefit from political stability and reliable output.
• Infrastructure-related materials like copper and steel may benefit from global infrastructure investment. However, their higher volatility makes them less suitable as core holdings compared to gold.
• Brent crude has underperformed this year and shown high volatility. This limits its attractiveness for SGD investors looking for defensive, inflation-protected exposure.
• Amid tighter credit conditions and neutral prospects for high-yield debt, gold continues to be a preferred allocation. Its defensive qualities provide critical support during uncertain times.
• Gold remains the top choice for SGD-based investors navigating a landscape of macro risk, currency shifts, and policy divergence. While other commodities may offer upside, gold delivers the clearest balance of protection and performance.

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