Schroders’ Keiko Kondo: Reduce the weighting in US technology stocks; position for RMB appreciation.

Global stock markets trended upward in the first half of the year, with AI concepts continuing to attract capital. Keiko Kondo, Head of Multi-Asset Investments for Asia at Schroders, said that although volatility in tech stocks has increased, the market has not yet reached a stage that calls for full-scale risk aversion. Instead, investors should continue to take risks, but with greater selectivity.

Asian AI stocks still have appeal

She believes Asian AI stocks remain attractive, especially in markets such as South Korea and Taiwan, because companies in the region hold leading positions in the global AI hardware supply chain. They are no longer just traditional manufacturing bases, but “global leaders” in certain niche areas.

Kondo noted that South Korea and Taiwan have performed strongly this year. This is not simply driven by valuation speculation; it is supported by earnings growth. Taking South Korea as an example, the index is led by a small number of large tech stocks, but the earnings growth of the related companies is also strong. As a result, from a forward price-to-earnings (P/E) perspective, the market may not be clearly more expensive, and some valuations are even cheaper than before.

However, she also reminded that the South Korean market is highly concentrated. If investors buy directly into the main index, the risk could be overly concentrated in a handful of stocks. Therefore, in its allocation, Schroders is more inclined to choose instruments with a cap on any single stock, or more broadly diversified portfolios.

By contrast, she believes Taiwan’s tech stocks benefit from a larger number of companies tied to the AI hardware chain, making the investment universe more diversified than in South Korea. As for China’s AI concept stocks, she thinks they are still in an earlier stage, but the potential beneficiaries could be broader. China not only has hardware demand, but is also developing its own AI software and high-value-added industrial chains. If companies’ earnings prospects continue to improve, related stocks still have room to rise.

That said, she emphasized that the AI rally will not move “straight up”; it will trend upward amid volatility. Investors need to control their position sizes and withstand short-term swings.

US stocks still have earnings support, but tech valuations need to cool off

When discussing US stocks, Kondo believes the US economy remains an important support for global risk assets. Even though the past year brought shocks from taxation, geopolitics, and energy prices, US consumption has remained resilient, and real purchasing power has not collapsed in any obvious way. Indicators for the services sector and manufacturing are also relatively healthy, allowing corporate earnings to continue. She pointed out that while global stock markets rose significantly this year, once you break down the sources of returns, it can be seen that a substantial portion comes from earnings growth rather than relying solely on valuation expansion.

However, Kondo’s view on US tech stocks has shifted from earlier optimism to a more cautious stance. She said that when tensions in the Middle East escalated, US tech stock valuations fell sharply at one point, and at that time Schroders tactically increased its holdings in US tech stocks. But later, tech stocks rebounded quickly and valuations returned to higher levels, making further upside harder to achieve.

Therefore, Schroders is not turning bearish on US stocks or the AI theme. Instead, it is starting to free up some capital from US tech stocks and rotate it into other stock themes that can diversify risk, including financial and resource-related sectors.

She described that investing in tech stocks today cannot simply be a “buy and hold” approach, because both index concentration and single-stock concentration are high, and volatility is amplified by leveraged ETFs and capital flows. For asset allocators, the question is not whether the AI story has ended, but how the theme should be expressed: in the early stage, you could participate through the Nasdaq and large US tech stocks; later, you shifted toward the hardware supply chains in South Korea and Taiwan; and more recently, you have started to pay attention to China onshore tech stocks. In other words, AI is still the main storyline, but the investment entry points are continually changing.

Rate-cut expectations for US bonds fade; the market moves into a wait-and-see period

With the market focused on where US interest rates are headed, Kondo said that early in the year, the market had at one point expected the Federal Reserve to cut rates 2 to 3 times this year under new leadership. However, as tensions in the Middle East pushed up energy prices and inflation worries resurfaced, rate-cut expectations were effectively wiped out. The current market consensus has largely shifted to no rate cuts or rate hikes this year, and it has even begun to reflect the risk of one rate hike toward year-end or next year.

She believes the US economy is currently in a delicate balance: growth still shows resilience, while inflation has shifted from the prior trend of decline to stagnation, with even some upside risks. If energy supply and shipping routes in the Middle East return to normal, inflation pressure should be manageable. But if supply disruptions occur again in July or August, since previously available reserves have already been significantly consumed, the inflation impact could be underestimated by the market. This also explains why Schroders maintains a neutral view on government bonds and credit, because the next direction of the rates market depends heavily on whether inflation or growth changes first.

Letting go of gold; shifting to mining and energy stocks

Gold has often been viewed as a risk-diversification tool. But Kondo said that in the first half of this year, amid geopolitical tensions and market volatility, gold’s performance has instead looked more like a high-beta (BETA) stock, with rising correlation to equities—weakening its value as a hedging tool in diversified multi-asset portfolios. Therefore, from an allocation perspective, Schroders has reduced its reliance on gold and instead seeks commodity-related stock exposures that can benefit more from structural demand.

She favors metal mining stocks, especially companies related to copper, iron ore, and steel. The reason is that AI infrastructure, power grids, and data center investments still require large amounts of metal resources, and fiscal stimulus in various countries also helps support demand for infrastructure. Compared with some tech stocks that have already become expensive, mining stocks have more reasonable valuations, while still benefiting from demand in the next phase of AI investment.

On the energy side, she also prefers energy stocks rather than buying crude oil directly. In addition to benefiting from Middle East risks, energy stocks also benefit from longer-term factors such as replenishing strategic reserves and increased demand for investments in traditional and alternative energy.

RMB outlook turns more positive; positioning via onshore stocks

As for the renminbi, Kondo said that Schroders has turned more positive on the outlook for the RMB, especially from a medium-term structural perspective. She believes that while China’s economy remains mixed, signs of stabilization are already visible. If the policy direction continues to drive the economy toward high-value-added industries, the RMB has the conditions to appreciate gradually.

In terms of investment strategy, she said that Schroders primarily increases RMB-related exposure through two channels: first, within Asian equity allocations, by adding growth stocks and tech stocks in the Chinese onshore market; and second, in certain portfolios, by buying offshore RMB via forward contracts. She did not provide a specific target price for USD/RMB, but emphasized that regardless of whether a portfolio is denominated in Hong Kong dollars, Singapore dollars, or other base currencies, the team remains constructive about the direction of the RMB.