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TIME TO LOOK BEYOND THE US?

The U.S. equity market has long been the cornerstone of global portfolios, making up nearly two-thirds of the MSCI World Index .MIWO00000PUS. To justify its current share, U.S. equities must outperform non-U.S. equities by 4–5% annually over the next decade, Goldman Sachs strategists say in a note. The U.S. stock market's bull run hit its three-year mark recently, fueled by AI optimism and more recently by expectations of interest rate cuts. However, rising concerns over stretched valuations and fears of a market bubble have led to growing investor unease. Recently, IMF chief Kristalina Georgieva and some big bank executives have warned that soaring asset prices and elevated stock markets could pose significant risks to the global economy, raising concerns about potential sharp corrections. Goldman notes that strong earnings, rising valuations, and a strong dollar trend have been helping the U.S. for the outperformance, but cautions that these tailwinds may be running out of steam. Analysts have also raised concerns over rising concentration risks in U.S. equities, with Deutsche Bank warning that the dominance of the top seven S&P 500 .SPX index constituents has reshaped its risk profile, making the market more vulnerable to sharp drawdowns. High levels of concentration and increased competition in the AI space suggest investors should continue to focus on diversification, Goldman analysts note. "Larger allocations to smaller assets, including sectors and styles, cryptocurrencies and alternatives could historically improve risk-adjusted returns of the world portfolio."

(Joel Jose)

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