Equities: Smaller caps and overlooked sectors gain favour as AI rotation unfolds - HSBC

Broader capital expenditure and AI spillovers could support Industrials and Financials, according to HSBC Asset Management, whose report examines the fragility exposed in mega-cap indices such as the S&P 500 and Nasdaq by the AI-led technology sell-off. It argues that equal-weighted benchmarks and sectors that have lagged could benefit whether AI falters or continues to advance. Portfolios diversified globally across sectors and market capitalisations are viewed as well placed.

Opportunities broaden beyond mega-caps

"The recent AI-induced tech sell-off was a sharp reminder that relentless outperformance breeds fragility."

"Since 2011, the cap-weighted S&P 500 has trounced its equal-weighted cousin by nearly 225%, with just ten stocks commanding close to 40% of the index."

"Despite a modest de-rating this year, mega-cap tech remains hypersensitive to shifts in AI sentiment."

"Even if the tech story holds, AI spillovers—alongside broadening capex—should lift left-behind sectors and smaller-cap names across Industrials and Financials."

"The most compelling opportunities now lie beyond the mega-caps—leaving globally diversified portfolios across sectors, regions, and market caps well positioned for the coming years."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)