Shifts to quality and scarcity

Recent weeks have seen a reassessment of risks across energy markets, fiscal space, artificial intelligence-related (AI) stocks and emerging markets. Investors are increasingly favouring businesses with strong balance sheets, pricing power and exposure to structural supply constraints. In energy markets, the geopolitical premium appears more apparent, reflecting tighter and more expensive supply routes, rather than a temporary disruption. Although energy prices have retraced, this premium is likely to stay for some time. 

In equities, we are witnessing a rotation out of AI-related stocks. Markets are scrutinising the earnings potential and cash flows from the massive capital expenditure on AI. In addition, the Democratic sweep in the mid-term elections has raised concerns about closer examination of AI, Big Tech and data-centre development.Government bond yields initially rose to levels not seen in years, but Treasuries eventually regained their safe-haven appeal. Core European bonds also benefited from a flight to quality.

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