AI correction opportunity and diversification (with Stephen Engel, Ivan Man)

Sean Taylor views the selloff as a technical correction, not a bubble burst, due to strong earnings and order books in AI supply chain. He advises diversification across financials, industrials, and commodities to hedge, and sees opportunities in Singapore and Vietnam while being cautious on India, Indonesia, and Philippines. He warns that EM is now a narrow leverage trade on AI, making balance crucial.

Yields

explicit

implicit

explicit

implicit

Matthews Asia 1.0
Other
Sean Taylor 8.5

AI correction opportunity and diversification (with Stephen Engel, Ivan Man)

dxy

If rates in the US remain high and oil rises, the dollar could strengthen, but the focus is on EM currencies being under pressure.

metals

Commodities like copper and aluminum have a demand-supply gap and will go up a lot; stocks are cheap with 9% yields.

ndx

It's a technical correction, not a bubble burst. People will buy back AI supply chain stocks because that's where growth is.

rut

The selloff is technical and could extend depending on retail leverage in Korea, implying near-term volatility and potential further downside.

wti

Oil price going up is a factor that could extend the correction and become growth-sensitive, implying upward pressure.

Is this the big unwind and big correction?

Ivan Man
Sean Taylor

This is a technical correction, not a bubble burst. It could extend depending on oil news and retail leverage in Korea, but for professionals it's an opportunity to increase exposure to areas with rising earnings.

Many retail investors entered late with leverage, causing a huge rise, but earnings continue to grow.
Is this different from the dot-com bubble? Optimism at Computex is backed by full order books.

Stephen Engel
Sean Taylor

This is more fundamental than dot-com because earnings back the AI trade, with strong order books and low PEs. The question is whether growth is structural or cyclical.

Dot-com was based on elevated PE, not earnings. AI PEs are still low, so if structural, these areas are worth double or triple.
How do you stay invested in Korea without giving back gains?

Ivan Man
Sean Taylor

Diversification is key: balance AI plays with value stocks like financials, industrials, and defense. Many companies with strong order books haven't run up yet.

The biggest worry is that EM is now a narrow leverage trade on AI, so we keep balance with financials in China and other sectors.
The Philly semiconductor index was down 10% on Friday, suggesting profit taking ahead of IPOs.

Stephen Engel
Sean Taylor

Many have leveraged into a narrow area; EM is even narrower than Nasdaq. If rates and oil worry growth, people will buy back AI supply chain stocks because that's where growth is.

Only four or five stocks have driven earnings in Asia, so balance is needed, but AI growth is structural.
What is the right hedge? US 30-year yield at 5% makes gold less attractive.

Stephen Engel
Sean Taylor

Gold may pause, but commodities like copper and aluminum have strong demand-supply gaps and stocks are cheap (9% yields in China). Hedge with financials in Japan or China, but avoid Chinese regulation issues.

Commodity stocks are down 15% on the year despite strong micro fundamentals, but macro growth concerns could delay the hedge.
What about Indonesia and India?

Ivan Man
Sean Taylor

Nervous on Philippines and Indonesia due to politics and oil. Like Singapore and Vietnam for industrials. India is expensive with falling earnings and no growth driver.

India's software sector is hurt by oil prices, and there's no catalyst to change the earnings trajectory.

SignalTube

markets at a glance