CLSA has released a research report stating that as the S&P 500 Index climbed above 7,800 points and the U.S. 10-year Treasury yield reached approximately 5.3%, the Fed model has shifted from favoring stocks to favoring bonds for the first time in about 25 years.

The firm notes that for investors who have been in the market for less than 25 years, this is an unprecedented situation, but it views this merely as an observation rather than an asset allocation recommendation. Its S&P 500 model suggests only about 5% upside over the next twelve months.

CLSA points out that U.S. Treasury Inflation-Protected Securities (TIPS) real yields of approximately 3% are attractive, and combined with strong earnings momentum, this may temporarily prevent valuations from shifting further toward fixed-income assets. However, equity exposure across multiple categories of investors is already at historically high levels.

The firm states that institutional investors' willingness to hold equities, as measured by net S&P 500 futures positioning, has fallen further to its lowest level since April 2023. Meanwhile, household equity sentiment is unusually elevated, and the sentiment divergence between institutional investors' "fear" and retail investors' "greed" continues to widen.

The firm also notes that over the past 10 weeks, the leading performance of U.S. technology stocks has once again dominated market returns, with the S&P 500 Index outperforming the equal-weighted index by approximately 10%. Yields appear to have peaked, with the 10-year TIPS real yield currently at about 3%, which could support long-duration large-cap technology stocks. However, the drivers behind falling yields are crucial: if driven by cooling inflation, it would be a positive; if driven by macroeconomic deterioration, it would be a negative.

CLSA's Asia Pacific (excluding Japan) focus stock list includes Tencent Holdings (00700), CK Hutchison Holdings (00001), BYD Company (01211), CSPC Pharmaceutical Group (01093), Nongfu Spring (09633), TSMC (2330.TW), Hengli Hydraulic (601100.SH), CATL (300750.SZ), SK Hynix (000660.KS), and Kia (000270.KS), among others.