AI Drives U.S. Stocks, Bonds and Gold Lead Defensive Plays

Global markets pivot as AI fuels U.S. equity growth, bond markets offer resilience, and gold outshines industrial commodities amid rate cuts, inflation, and rising geopolitical tensions. Explore top strategies for equities, bonds, currencies, and commodities.

Key Points

• U.S. equities, led by AI, tech, and manufacturing, remain the most attractive amid strong FDI and industrial investments, while Europe lags and emerging markets like India, Mexico, and Vietnam offer growth opportunities through supply chain shifts.
  
  
• Bond markets remain volatile amid expected U.S. rate cuts, favoring U.S. investment-grade and Treasury bonds, French and European covered bonds, and select emerging market bonds from Mexico, Vietnam, and India for growth and yield opportunities.
  
  
• SGD remains a strong defensive currency amid global FX volatility, with USD offering safe-haven appeal, INR and VND showing long-term growth potential, and tactical opportunities in long SGD/EUR and short JPY/SGD positions.
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• Gold remains a key hedge for SGD investors against inflation and FX volatility, with rising demand supported by expected Fed rate cuts, a weaker USD, and attractive investment options in SPDR Gold Shares (GLD), physical bullion, and emerging market gold ETFs.

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U.S. Leadership, European Constraints, and Emerging Market Growth Opportunities

U.S. equity markets dominate in capitalization and innovation, supported by strong FDI and AI-driven growth

• U.S. stock market capitalization exceeds 200% of GDP, far surpassing Germany's 50%.
• U.S. attracted $311 billion in FDI in 2023, with 42% directed to manufacturing.
• Technology and AI drive 64% of earnings growth, with over 50% of global VC deals in AI sectors.
• Despite global growth forecasts revised down to 7.6%, AI, technology, and U.S. industrials remain resilient.

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European markets face structural financing limitations, while emerging markets capitalize on global supply chain shifts

• Germany has low stock market participation (below 10 listed companies per million people).
• EU capital markets rely on banks for over 90% of corporate credit.
• EU venture capital investment remains low at 0.5% of GDP compared to 1.5% in the U.S.
• Emerging markets like India, Mexico, and Vietnam benefit from supply chain diversification.

Focus on U.S. tech, AI, and industrial leaders, alongside strategic opportunities in France, Germany, and key emerging markets

• Prioritize U.S. Tech, AI, and manufacturing equities, including Applied Materials and Intel, as seen by $380 billion in FDI flows into U.S. manufacturing since 2022 and the U.S. capturing over 50% of global AI VC deals.
• France’s securitisation market (EUR 300 billion) supports financial sector equities.
• Germany’s tax reforms improve industrial competitiveness, as seen by its competitiveness ranking improving from 17th in 2022 to 15th in 2024 among 67 countries.
• Emerging market ETFs focused on India, Mexico, and Vietnam offer supply chain growth exposure, as seen by these markets being the primary beneficiaries of global supply chain rebalancing.
• U.S. financials like JP Morgan Chase and consumer leaders like Walmart provide stability, as seen by their strong fundamentals supported by 12% of U.S. FDI directed to financial services and 19% to wholesale and retail trade.

  

​U.S. Resilience, European Liquidity Gaps, and Sector-Specific Investment Strategies

EU bond markets remain underdeveloped and illiquid despite growing issuance, with France leading and Germany exposed to duration risks

• EU corporate bond issuance reached EUR 2 trillion by end-2024 but remains underutilized, with over 90% of corporate credit still provided by banks.
• France leads in bond issuance at 25% of GDP (EUR 694 billion), while Germany remains exposed to duration risks with only 6% of GDP in corporate bonds and predominantly long-term debt structures.
• Liquidity is constrained with 80% of EMU bonds held domestically, limiting foreign participation and diversification.

U.S. FDI inflows, real estate demand, rate cut expectations drive bond market activity. Europe offers low-risk ABS investments

• U.S. FDI inflows and real estate demand support asset-backed securities, as seen by family offices increasingly investing in U.S.-based real estate and ABS, particularly in Florida.
• Expectations of 2-3 U.S. rate cuts in 2025 prompt corporates to lock in long-term funding, with over 50% of global corporates planning M&A or new facilities ahead of anticipated rate declines.
• European ABS default rates remain low at 0.0% compared to 3.4% in the U.S., offering stable returns and lower credit risks.

Prioritize U.S. and French bonds for liquidity and resilience, while selectively targeting German, emerging market, and sector-specific bonds

• Prioritize U.S. investment-grade corporate and Treasury bonds, as supported by their resilience during market volatility and strong demand from global asset allocators over the past two decades.
• In Europe, favor French sovereign and corporate bonds with higher liquidity, backed by France's leading bond market position and active issuance.
• European covered bonds offer safe collateral-backed options, supported by significant growth in the market and robust regulatory frameworks.
• Favor short-to-medium duration German bonds to mitigate duration risks, given Germany’s high exposure to long-term fixed-rate debt.
• Emerging market bonds from Mexico, Vietnam, and India remain attractive, benefiting from supply chain realignment and improved fiscal balances.
• U.S. technology, energy, and real estate-backed securities offer competitive yields, driven by strong fundamentals in sectors like chemicals (benefiting from low input costs) and robust demand for real estate-backed securities (MBS) in high-growth regions like Florida.

  

​SGD Stability Amid USD Weakness and Emerging Market Divergence

SGD remains resilient amidst a weakening USD and stable FDI inflows

• SGD remains resilient, supported by stable FDI inflows and macro fundamentals, as seen by Singapore ranking among the top 15 destinations in the FDI Confidence Index.
• The Bloomberg Dollar Index declined by nearly 7%, creating short-term USD/SGD pressure.

Emerging market currencies face volatility, while JPY remains weak and INR/VND show long-term strength

• MYR and IDR remain volatile due to fiscal imbalances, as seen by their heightened exposure to external USD-denominated debt and policy-driven FX volatility.
• JPY weakens under prolonged dovish monetary policy, as seen by Japan's continued accommodative stance and deflationary environment.
• INR and VND strengthen due to supply chain realignment, as seen by significant global investment reallocations to India and Vietnam, and rising FDI inflows, as seen by their strengthening positions relative to SGD.
• Investors should maintain a defensive stance with SGD, as seen by Singapore’s top 15 ranking in the FDI Confidence Index and resilient macroeconomic fundamentals.

Maintain defensive SGD holdings while exploring selective opportunities in USD, EUR, JPY, INR, and VND

• Maintain core holdings in SGD for stability, as seen by strong FDI inflows and Singapore’s continued status as a financial safe haven.
• Consider long positions on SGD/EUR and short positions on JPY/SGD, as seen by ongoing geopolitical risks weakening the EUR and Japan’s prolonged accommodative policy stance impacting JPY.
• Retain selective exposure to USD for safe-haven allocation, as seen by persistent demand for USD-denominated assets, particularly in U.S. real estate and government bonds.
• Invest in INR and VND for long-term growth, as seen by robust FDI-driven growth, improving trade balances, and supply chain diversification benefiting these economies.

  

​Inflation-Driven Demand and Strategic Wealth Preservation

Inflation and geopolitical risks fuel strong institutional demand for gold over industrial commodities

• Global inflation and geopolitical tensions drive demand for gold, as seen by sustained institutional demand for gold ETFs and bullion amid rising inflation and geopolitical risks.
• Institutional demand for gold remains strong amid a ~1.5% drop in FDI as a share of GDP, signaling a slowdown in globalization and heightened uncertainty.
• Industrial commodities face supply-side and regulatory challenges, reinforcing gold’s defensive appeal, as seen by heightened volatility in industrial metals like nickel and copper driven by supply chain disruptions and production costs.

Weaker USD, trade tensions, and falling globalization drive gold’s appeal as a defensive asset

• U.S. Fed rate cuts in 2025 and a weaker USD support higher gold prices in SGD terms, driven by falling U.S. yields and increased safe-haven demand.
• The Bloomberg Dollar Index decline and a 45% drop in European FDI inflows reinforce gold’s value, as global investors diversify holdings amid geopolitical tensions and economic uncertainty.
• Rising trade protectionism depresses industrial commodity demand and boosts gold’s hedge appeal, as seen by increased protectionist policies disrupting commodity flows and reinforcing gold’s role as a defensive asset.

Prioritize highly liquid gold ETFs, luxury equities, and regional gold investments to diversify and preserve wealth

• Prioritize SPDR Gold Shares (GLD), physical bullion, and sovereign gold bonds, as seen by SPDR Gold Shares’ high liquidity and institutional preference for tangible assets.
• Consider luxury equities like LVMH benefiting from high gold prices, as seen by LVMH’s strong jewelry segment performance tied to elevated gold prices.
• Explore gold-focused ETFs targeting India, Mexico, and Vietnam, as seen by FDI flows driving industrial production and precious metals demand in these regions.
• Gold remains critical for wealth preservation and diversification in volatile markets, as seen by continued investor allocations to gold amidst prolonged policy uncertainty and macroeconomic instability.

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