I recently spoke with The Economic Times about what may be one of the defining investment questions for the remainder of 2026: are we still in a US-led AI super-cycle or are markets beginning to rotate?
Right now, global markets are reacting to the dramatic geopolitical events and high volatility will certainly dominate the price action of stocks short-term. Yet, when this uncertainty lessens, history shows that investors will return to fundamentals and the structural allocation factors underpinning our discussion are likely to reassert themselves.
My conversation with ET Markets editor Kshitij Anand focused on the recent tangible evidence of equity rotation. Reuters, citing LSEG Lipper data, reported that US-domiciled investors have withdrawn approximately $75 billion from domestic equity funds over the past six months which represents one of the fastest outflows in over a decade. Much of this capital is reallocating geographically to European and Asian equity funds. Reuters has highlighted record US institutional buying in selected Asian markets particularly South Korea, Taiwan and China.
Within the S&P 500, leadership is also shifting. Energy, materials and industrials have led performance this year and ETF flows suggest investors are responding accordingly. Morningstar’s ETF flow data shows that the narrow dominance of mega-cap growth is gradually giving way to a broader sector allocation.
I referred to the classic return identity popularised by Peter Lynch and John Bogle:
Total return ≈ Dividend yield + Earnings growth ± change in valuation multiple.
The takeaway is that three indicators now warrant close attention: dividend sustainability and yield differentials, forward EPS revisions for mega-cap technology versus the broader index and relative P/E compression between US growth and European and Asian value.
Beyond the identity itself, sustained cross-border equity flow data will help determine whether this is simply a pause in US sector and geographic leadership or the early stages of major structural reallocation.
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#globalmarkets #assetallocation #ai #sectorrotation #valuations