Head of Research on Broadening Trade and Asia Markets (with Heidi Strad Watts, Sherry On)

George Baboris sees the broadening out of the AI rally into midcaps, financials, utilities, and healthcare as the key trade. He believes AI earnings justify valuations. He prefers Nikkei, KOSPI on retracement, Singapore, and Australia, while shorting Indonesia and avoiding India due to lack of reform. He expects structurally weaker Asian currencies with intermittent intervention, especially for the yen.

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K2 Asset Management 7.8
Asset Manager
George Baboris 8.5

Head of Research on Broadening Trade and Asia Markets (with Heidi Strad Watts, Sherry On)

dxy

Structurally weaker Asian currencies... structurally weakness for the yen to continue.

ndx

The broadening out is the trade... AI earnings are extraordinary and justify valuations.

rut

We are looking at that midcap broadening out... the broadening out has got some benefits for the broader economy.

yields

BOJ expected to hike rates, and US economic data remains strong, both supportive of higher yields.

George Baboris

The broadening out is the trade; AI earnings are extraordinary and justify valuations, supporting rotation into midcaps, financials, utilities, and healthcare.

Earnings are coming through historically high, matching the P/E multiple; concentration of capital in AI is finite but earnings justify it.
George Baboris

Upcoming mega IPOs will continue the trend of global capital flowing into US equities and AI; diversification into midcaps and other sectors has been happening for 6 months.

Debt issuance is dominated by AI/chip sector; new capital will chase beta, but active managers will take profits and broaden out.
George Baboris

Prefer Nikkei, KOSPI on retracement, Singapore as hub, and Australia for high payout ratios and dividends.

KOSPI rally has been historical but volatile; Australia has oligopolistic earnings.
George Baboris

Short Indonesia due to currency weakening and capital flight; avoid India due to lack of broad-based economic reform.

Indonesia keeps disappointing on reform; tourism is the only beneficiary of weak currency. India lacks access to key tech earnings.
George Baboris

Yen has structural weakness with pockets of BOJ intervention at 159-160; expect weaker yen in a year but with rallying bouts.

BOJ wants to deliver higher nominal rates; intervention prevents one-way trade. More volatility is the norm across asset classes.

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