While we have switched away from US stocks, our main investing theme has not changed. That is, we continue to believe in the future of artificial intelligence (AI), including generative AI (GenAI) and agentic AI — and, more specifically, in enterprises that embrace technology and AI tools in their core businesses, be it to transform existing processes to boost operational efficiency, productivity and competitiveness, drive innovation or create new products-demand-markets and so on. This being the case, we recently added Alibaba Group Holding and Trip.com Group to our portfolio. As with our previous investment, Tencent Holdings, these Chinese-based consumer tech companies are trading at more attractive valuations compared with their US counterparts. All are deeply invested in AI to drive their businesses.
Followers of Tong’s Absolute Returns Portfolio would recall that we recently pared our exposure to US stocks. As we have written previously, even as US inflation rates declined from the 2021/22 highs, they will not return to pre-pandemic lows but will stay higher for longer with the reshuffling of global supply chains and accelerating deglobalisation. This means that interest rates too will not return to the lows of the past decade.
But what has happened in recent weeks is yields on longer-duration Treasuries reversing higher — the 10-year term premium was trading near the highest level since 2014 — driven, primarily, by fears that President Donald Trump’s tariffs will raise inflation, and that his One Big Beautiful Bill Act (currently being debated in the Senate, having passed the House of Representatives) will add trillions to the US budget deficit, raise total public debts and worsen the US’ fiscal position. A rising interest rate environment means lower stock valuations (discounted future cash flows), all else being equal. Yet, prevailing US stock valuations have remained high.
