Wealth managers urge diversifying after AI stock rout

Several wealth managers are telling clients to stay invested after a rout in US technology shares last week, but to spread their money more widely. The selloff on Thursday, Nov. 5, was driven by fears that Democrats' midterm gains could slow the AI build-out. WealthBriefing reported that the S&P 500 ↗ 2.37% fell 4.4%, the Nasdaq Composite dropped 5.5% and the Philadelphia Semiconductor Index PHLX Semiconductor Index ↗ 7.03% sank 12.3%. That left the chip index down about 38% from its June peak.wealthbriefing.com

Election fears hit chips

Reuters said Qualcomm's weak smartphone chip sales added to the pressure, as did worries that a Democratic Congress could slow AI infrastructure investment. Candidates who opposed new data centres also won in Texas and Georgia. Texas governor-elect Gina Hinojosa has pledged to halt new data centre construction, and Democrats in Congress have called for independent testing of AI systems. The drop pushed the Nasdaq into a correction (The Wall Street Journal News Corp ↗ 1.28%). Nvidia ↘ 4.27% fell more than 9%. Chip stocks bounced back partway on Friday.tbsnews.net+3

A reset, not a downturn

Mark Haefele, chief investment officer at UBS Global Wealth Management, called the decline a positioning reset. He said he still expects broad equity indices to rise over the next six to 12 months. "We do not think fundamentals justify a prolonged downturn," he said, but he urged investors to rebalance "excessive technology exposure".wealthbriefing.com

Enrico Chinello of Julius Baer said the market may be misjudging the risk. He noted that "federal AI rules face a presidential veto" and argued the bigger risk lies with states limiting data centres, especially Texas. Lombard Odier described the slump as an unwinding of crowded trades, not a sign of weaker demand. It said it had added exposure, adding that falling bond yields showed no recession signal.wealthbriefing.com

Looking beyond mega-caps

Daniel Nilsson of Isio pointed to global small caps, emerging markets, infrastructure and short-duration credit as ways to spread risk beyond US mega-cap tech. Pruksa Iamthongthong of Aberdeen Investments said AI capacity could shift abroad, which would help Asian supply chains. Ben Seager-Scott of Forvis Mazars noted this was roughly the fifth sharp fall in a year, and the market had rallied each time. His firm has been moving underweight US mega-cap tech in favour of an equal-weighted index.wealthbriefing.com

How the selloff plays out this week may depend on signs of whether political and local opposition will make data centre projects harder to build.finance.yahoo.com