Asia and choose Europe markets look enticing amid US focus dangers: David Gibson-Moore
Whereas the US continues to command a dominant share in international portfolios, questions round sustainability, overinvestment in AI, and stretched P/E multiples are prompting traders to reassess tactical allocations.
In an interplay with Kshitij Anand of ETMarkets, David Gibson Moore, President of Gulf Analytica, stated that though the US will stay a core portfolio allocation, Asia and choose European markets are starting to look more and more enticing.
He pointed to enhancing fundamentals throughout elements of Asia, compelling alternatives in India, South Korea and Indonesia, and a shifting sectoral combine in Europe — notably manufacturing and defence — as causes for potential diversification amid rising focus dangers in US markets. Edited Excerpts
Kshitij Anand: What do you make of the US markets? Actually, they’ve delivered good returns in 2025 as nicely at this time limit.
David Gibson Moore: Nicely, I believe your abstract was completely glorious. The efficiency of US equities in 2025 was sturdy and, in truth, traditionally fairly notable. The S&P 500 returned 18%, together with dividends; the Nasdaq rose about 21%; and the S&P Development Index gained about 22%.
This was the third consecutive yr of double-digit returns and was very enticing for many traders, in fact. Nevertheless, as we all know, the management was extremely concentrated.
A comparatively small group of mega-caps — the AI-linked corporations together with Nvidia, Microsoft, Alphabet, and Meta, and so forth — drove a disproportionate share of those index positive aspects. This was supported by excessive earnings progress in that sector and elevated P/E valuations.
I personally really feel it is extremely helpful to return to the traditional valuation mannequin. In different phrases, whole return arises from earnings progress, primary; change in valuation a number of, quantity two; and dividend distribution.
Once we analyse the market, it is extremely helpful to drill down into these two elements. Dividend return might be barely much less vital on this context, however the first two elements are essential after we attempt to decide whether or not that is sustainable and what traders must be doing in 2026.
Kshitij Anand: There was a current survey — Financial institution of America often comes out with these surveys each month — which confirmed that international traders are more and more apprehensive that corporations are overinvesting. Do you suppose there may be some benefit in that assertion?
David Gibson Moore: Nicely, sure and no. It relies upon, once more, after we break it down into these two components — whether or not P/E ratios are going to stay excessive for these mega-cap shares or whether or not they’re, in standard funding knowledge, going to revert to the imply finally, maybe even this yr; and likewise whether or not earnings are going to proceed rising. These, in fact, are the good questions in traders’ minds.
Once you lengthen the argument, there may be additionally the query of whether or not we must be diversifying out of mega-cap shares and whether or not we must be taking a look at sure attention-grabbing alternatives in abroad markets. I believe these are themes we are going to most likely be creating collectively, and they’re very a lot on traders’ minds for the time being.
If we have a look at the US markets, the sustainability issue for them to stay enticing goes to depend upon continued earnings progress; broader earnings participation past the present management — which is a most attention-grabbing query; tangible productiveness positive aspects from AI-related capex — are we going to see this now, or is that going to be delayed?; and, underlying all of this, the trail of actual rates of interest, which is essential for the US market.
Kshitij Anand: One of many elements that basically drove US equities larger was expertise, and AI contributed considerably. AI bubbles had been cited as a prime tail danger. How may AI-related exuberance contribute to overinvestment considerations? What are your views on that?
David Gibson Moore: A really attention-grabbing level — and a crucial one. I believe it’s a excellent query certainly. The important thing issue is the huge capex we’re seeing from mega-cap corporations. The figures, I consider, are round $600 billion from Microsoft, Alphabet, Meta, and Amazon. These are extraordinary numbers.
When are we going to see outcomes from this? When are we going to see earnings enhance? When are we going to see money circulation getting back from these investments? These are, frankly, problematic questions and the topic of a lot evaluation.
Actually, you’ll be able to draw analogies with what occurred in the course of the dot-com growth. Funding in fibre and cabling, as an example, was terribly excessive, and the outcomes weren’t seen for fairly a while. So the crucial issue would be the productiveness of the massive funding going into this sector.
And, in fact, this isn’t only a US phenomenon. Globally, AI-linked funding is driving extraordinary expenditure throughout developed and rising markets. We all know that is additionally a China story — they’re investing lots of of billions in AI. So this phenomenon isn’t distinctive to the US.
Kshitij Anand: And given the blended indicators of bullish sentiment and overinvestment fears that we’re seeing, what ought to long-term traders watch most carefully within the coming months?
David Gibson Moore: Nicely, now we have cited Financial institution of America a number of instances already. I believe they’d an excellent report that got here out lately, which I used to be finding out the opposite day.
Actually, primarily based on responses from 162 managers overseeing about $140 billion in property underneath administration, a document 81% of respondents consider that the capex determine is just too scorching, with solely 20% supporting additional will increase and 25% citing an AI bubble as the highest tail danger for US markets. So there may be plenty of concern.
In fact, the opposite side is that if we’re trying on the AI phenomenon, different corporations are additionally benefiting from it. One other issue is the extent to which corporations utilizing AI themselves are going to enhance their money flows and earnings scenario.
So, if we assume that mega-cap inventory P/Es have reached their limits, that might be an argument for diversifying out of the Magnificent Seven and into monetary shares, healthcare shares, and different sectors which have been commented on fairly lately.
We would see diversification away from mega-caps into different enticing shares within the US. And, in fact, the opposite a part of the equation is what is occurring abroad and whether or not we must be diversifying barely out of the US.
I believe that is very attention-grabbing as a result of, as asset managers, we arrange a strategic allocation — that’s, the long-term allocation — however then we even have the choice of tactical variations, that means short-term changes to strategic allocations. I believe these are most likely the areas which are going to alter.
The US has such a big market and such a major technological benefit that it’ll all the time stay a key component in any portfolio.
Most optimization situation analyses would doubtless put US publicity at round 55–60%, virtually robotically. Nevertheless, we are actually contemplating whether or not tactical allocations for 2026 must be adjusted to take a few of these different issues into consideration.
Kshitij Anand: However aside from the US, are there some other geographies which are trying notably enticing?
David Gibson Moore: That could be a very attention-grabbing and vital query. Clearly, the 2 fundamental geographies that come to thoughts are Asia — which would come with South Asia, together with your individual Indian financial system, which we will talk about additional — and Europe.
Definitely, most analysts would say that Asia seems to be in comparatively good condition for the time being. It has not skilled the identical stage of AI-driven capex depth, though that’s nonetheless an element.
There are some very attention-grabbing options in South Korea and Taiwan, and naturally Indonesia, with its mineral assets. I believe India has some fantastic options that will entice worldwide traders.
Europe presents a barely completely different combine. Its markets will not be almost as AI- and tech-oriented. There may be extra publicity to manufacturing, and defence is now turning into an more and more attention-grabbing sector in Europe.
One other underlying issue, in fact, is forex. For a US dollar-based investor, forex actions are crucial. Japan, for instance, delivered very enticing returns, and that pattern appears to be persevering with.
Nevertheless, the greenback was fairly sturdy final yr, which lowered Japan’s attractiveness in greenback phrases. With the greenback weakening considerably lately, that’s one other issue that have to be thought-about when taking a look at abroad investments from a dollar-based perspective.
(Disclaimer: Suggestions, options, views, and opinions given by specialists are their very own. These don’t signify the views of the Financial Instances)
