Global equities’ H1 rally

Global equities rallied strongly in the first half of the year, with the threat of a US government debt default being avoided and a pause in rate hikes from the US Federal Reserve boosting equity markets. Peter Little, Fund Manager at Anchor Capital, shed light on the major drivers and general sentiment around equity markets globally for the first half of the year. He pointed out that the rally was primarily led by mega-cap tech and semiconductor sectors, which had been punished in the previous year. Companies like Tesla, Facebook, and Amazon saw significant losses last year and have bounced back in 2022. The hype around artificial intelligence (AI) has also fueled the semiconductor sector, with stocks like Nvidia and Broadcom experiencing substantial growth year-to-date. While the mega-cap tech and semiconductor companies have seen a significant surge, other stocks outside this grouping have only shown modest gains of about 4% year-to-date. Little highlighted energy and the US banking sector as the worst-performing markets and sectors. The energy sector, which had a strong performance in the previous years, experienced a decline as oil prices decreased due to stable supply. In contrast, the US banking sector faced challenges following banking failures and mismatches in assets and liabilities. Discussing the outlook for equity markets, particularly in the US, Little addressed concerns about the AI and semiconductor industries potentially being in a bubble. While the tangible earnings from semiconductor companies support their valuations, he expressed skepticism about the impact of AI on the earnings of tech giants like Microsoft, Amazon, and Meta. Little emphasized that some of the recent stock price movements could be attributed to a correction from the overvaluation during the peak of the pandemic-induced online shift. As investors navigate the evolving market landscape, the focus remains on identifying sustainable growth opportunities while monitoring potential risks and inflated valuations. The global equities rally in the first half of the year has showcased the resilience of certain sectors while highlighting the challenges faced by others. Moving forward, market participants will closely monitor developments in the tech, semiconductor, and AI sectors to gauge the sustainability of the current momentum and assess the implications of evolving market dynamics.