Although the S&P 500 index continues to inch closer towards correction territory, the widely tracked gauge of US stocks still remains highly exposed to one sector.
“The single riskiest asset class could still be the S&P 500 index,” said Wellington Management CEO and managing partner Jean Hynes at a private wealth session at the HSBC Global Investment Summit last week.
“You would not allow us to run portfolios like that for you, it is just highly concentrated in one tiny sub sector,” she said, alluding to the high concentration of technology stocks in the widely tracked benchmark for US equities.
The S&P 500 index exposure to the IT sector stands at almost a third of the index, although this figure does not include technology giants such as Amazon, Meta and Alphabet, which are categorised as consumer discretionary and/or communication stocks.
Although these companies drove the S&P 500 index higher over the course of the past two years, Hynes believes market breadth will return as AI adoption transforms how companies work.
“What we need to see, and what I believe will happen, is that technology gets transmitted to the rest of the world and the breadth of the market will expand,” she said.
“Whether it’s Europe, whether it’s in different parts of the US market, whether it’s in China – when you see the companies that adopt AI and have more productivity and higher earnings, then we will begin to see that breadth happen.”
Upbeat on China
On the topic of investing in China, Hynes also expressed some optimism for the outlook for a market that had been labelled as “uninvestable” by some investors for years.
As the world’s second largest economy emerges from the depths of a prolonged property market downturn and its homegrown AI technology starts to take hold, Hynes suggested money could start flowing back.
She said: “There will be a time when – it might be a year, it might be two years – when the innovation comes, when the earnings return.”
“Markets always follow earnings,” she added. “If earnings are going to emerge because of the technology lead of many industries in China, investors will come back.”
Other asset management executives were also bullish on the outlook for China during the session.
When asked if China was investable, Franklin Templeton President and CEO Jenny Johnson responded “Yes, absolutely it is investable.”
“I think China is really struggling on the consumer front,” she said. “The most recent policies of the Two Sessions is to try to figure out ways to get the consumer to spend, but there are really good opportunities in various areas.”
Similarly, Janus Henderson CEO Ali Dibadj said: “I think it’s really hard to bet against any country that has 1.4 billion people, an enormously successful history, lots of innovation, plenty of motivation, and lots of incentive being created by the government.”
“It may not be today, but could you see it in six months or twelve months? I think you absolutely could see a time to reinvest back into the market.”
