THINK DIFFERENTLY

Executive Summary

Market review

July was characterised by a sharp divergencewithin equity markets. Momentum stockscame under sustained pressure, with themonth delivering one of the largestmomentum unwinds since the 2008 GlobalFinancial Crisis.

Oil was among the stronger-performingcommodities amid renewed US-Iran tensionsand disruptions to the Strait of Hormuz.

Technology and Korean stocks came underpressure as crowded AI positions unwound,with forced selling by leveraged fundsamplifying the decline in memory andsemiconductor stocks.

Recent weakness appears more technicalrather than fundamentally driven. The reset incrowded, leveraged AI holdings may provide ahealthier base for the next phase of the cycle.

Outlook: growth holds, risks persist

Current base case: consolidation represents ahealthy reset that may support the next up-cycle,rather than the beginning of a deeper downturn.

Equities: We remain constructive, butselective. Hyperscaler capex remains a keysignpost for the AI cycle; any meaningfulreduction would warrant caution. Resilientearnings and less stretched positioningshould support markets.
Fixed income: Income remains attractive, butlong-term rates continue to face upwardpressure. We remain selective, favouringshorter-duration, better-quality bonds toharvest income while managing volatility.
Alternatives: Higher equity-bond correlationcontinues to support the case for alternativesas diversifiers. Gold continues to play animportant role in portfolios.

When crowded trades unwind 

Volatility beneath the calm surface: Whileglobal equities were broadly flat in July(+0.1%), AI-linked segments such assemiconductors saw sharp drawdowns ascrowded positions unwound.

Leverage amplified the sell-off: Investorswho borrowed or used leveraged products tochase the AI rally were hit hardest, with someleveraged ETFs falling more than 80%.

AI remains a structural theme, butselectivity matters: The past month showedthat even strong long-term themes can sufferwhen valuations and expectations move toofar ahead of fundamentals.

Balanced positioning in the currentbackdrop: We remain constructive butselective, staying invested in structuralopportunities such as AI while avoidingoverdependence on any single theme ormomentum trade.

Harvest good income by staying selective

Long-term government bond yields rose even asequities wobbled, once again showing that long-dated bonds may not always cushion portfolios inthe current environment.

What can income investors do?

Focus on short-to-intermediate durationbonds: We favour the 3–5 year segment,where investors can still earn attractiveincome with less sensitivity to interest-rateswings than longer-dated bonds.
Be selective in credit: With credit spreadsoffering less compensation for risk, we preferhigher-quality issuers and selected securitizedcredit.
Diversify beyond traditional bonds:Alternative income segments, such asinsurance-linked securities and royalties, canprovide income streams less dependent onthe economic cycle.

THINK DIFFERENTLY

Executive Summary

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