Edmund Shing:

Hello and welcome to a new podcast from BNP Paribas. I'm Edmund Shing, Chief Investment Officer. Today, I would like to look at the stunning performance of U.S. tech, in particular the Nasdaq 100 index this year, and maybe point out some surprising facts as well. 

So let's start off with the obvious facts. Despite the continued Iran-U.S. conflict and the continued closure of the Strait of Hormuz to maritime traffic, which might risk a global recession if it goes on for much longer, despite all of that, global stocks continued to hit new highs, led particularly by the U.S. technology sector, and of course, everything AI mania at the moment. Excitement around artificial intelligence continues, as has if anything only reinforced by the exceptionally strong Q1 results coming out of the large tech companies, not only in the U.S. but also, for instance, in South Korea. And this has led the Nasdaq 100 index, the sort of technology-heavy benchmark in the U.S., to rise by about 21% in U.S. dollars over the year to date. Now bear in mind that this is not being driven by the former mega-cap tech darlings, the Magnificent Seven, the likes of Google, Amazon, and so on. The Magnificent Seven are only up 10% year to date, so the Nasdaq 100 is far exceeding that, really being driven by the semiconductor sector in particular, and this sector is up something like 66% year to date. Clearly, huge contribution led by names that you will love and know, such as Micron, Sandisk, and even Intel. 

But if we then look at the rest of the U.S. market, so look at the S&P 500 ex the technology sector, you will note that this performance hasn't really spread out to the wider markets. Although the U.S. S&P 500 index, on a market cap-weighted basis, is up 11% year to date as of 1 June. Again, the vast bulk of this has come from technology. If you strip out the technology sector, the S&P 500 ex-tech is only up 3% year to date. So on that basis, actually, Europe ex- tech is doing far better. If you look at the Stoxx Europe 600 index, for instance, this is up 8% year to date. And what is even more interesting is a number of sectors in Europe are beating the Nasdaq quite handily. So on a year-to-date basis since the beginning of the year, we have so-called HALO sectors, so Heavy Assets, Low Obsolescence sectors such as mining or basic resources. This is up 33% year to date in Europe and led by names such as BHP Billiton, for instance, Rio Tinto, and Glencore. We also have, of course, the oil and gas, the energy sector. This, despite losing a little bit of momentum in recent days, is still up 29% year to date in Europe. So again, well exceeding the 21% for the Nasdaq. If we even turn to more tech or media and telecoms sectors, the Stoxx 600 tech sector is up 28%, led by names such as ASML, STMicro and Infineon in the chip sector, and also telecoms, led by telecom equipment companies, notably Nokia, back from the dead as it were, and also Ericsson. 

If we look around Europe, you might say, well, 8%, it's not bad, but it's not 21%. True, but if you had selected the right sectors within the tech sphere, or even within the more heavy asset basic materials sphere, you still have generated substantial outperformance, even against the Nasdaq, despite the almost parabolic nature of performance from semiconductor names, particularly in the US. 

We should also not forget to mention that even outside Europe and outside the US, there are other regions of the world that are performing exceptionally well this year, clearly leading the pack, the MSCI Emerging Markets Index, driven very much by both Taiwan TSMC, the chip maker, and also South Korea, led by SK Hynix and Samsung, again the memory chip makers, leading the MSCI Emerging Market Index in US dollar terms up 24% year to date, so ahead of the Nasdaq 100, despite the tech-heavy nature of the Nasdaq. And also Japan, which also I would argue is fairly tech-heavy as well, is doing very respectably up 17% year to date in local currency terms. So again, that strong momentum leading the Nikkei 225 index to above a level of 66,000, so really continuing to hit new all-time highs. 

So I think as stock market investors, yes, of course, you might be lured in by the sexiness of the technology sector, the parabolic nature of the performance, particularly of semiconductor stocks at the moment since the beginning of the year. But I want to remind you that actually, if you want to look at more broad-based performance and perhaps look at diversifying away from just purely US technology, and particularly semiconductor, then you can still look to Europe. There are several sectors there that are performing very well in the basic materials and in the tech-related space, but also think more broadly to Asia, in particular MSCI, the Emerging Markets, and also Japan. 

Thank you very much for listening to this weekly podcast from BNP Paribas Wealth Management. Please like, share, and subscribe to our series of podcasts. And until the next week, thank you for listening and goodbye.