EQUITY STRATEGY
Technology stocks lead global sell-off:
Mathieu Racheter, Head Equity Strategy Research, Julius Baer
Renewed concerns about the cost and financing of AI investment prompted investors to reduce exposure to technology stocks. While we remain constructive on the long-term AI opportunity, the correction reinforces the case for broader diversification as we set out in our year-end outlook in August. We continue to favour a more balanced allocation across regions and sectors, reducing dependence on a handful of US technology companies.
Global equities sold off on Thursday, 22 October, with the S&P 500 falling 1.2%, the Nasdaq Composite declining 2.6%, and the Philadelphia Semiconductor Index losing 6.7%, while the Dow Jones Industrial Average was broadly unchanged. Within the S&P 500, information technology and communication services led the declines, while consumer defensives, utilities, and healthcare posted gains. Around two-thirds of the S&P 500 Index constituents advanced, underscoring how weakness in a handful of heavily weighted companies can overshadow strength elsewhere in the market. Several factors appear to have contributed to the move. Strong gains earlier in the year left technology stocks vulnerable to profit-taking, while the latest earnings reports renewed concerns about the scale and financing of artificial intelligence (AI) investment. Meta’s spending plans and negative free cash flow brought these questions into sharper focus, while rising oil prices following renewed Middle East tensions added to inflation concerns. Investors are increasingly looking beyond the size of the AI opportunity to the cost of delivering it and the revenues needed to justify that spending. As the infrastructure buildout becomes more dependent on external funding, borrowing costs and balance sheet strength matter more. Widening credit spreads among specialised AI cloud providers (Neoclouds) illustrate the pressure at the more leveraged end of the industry. That said, we do not view the correction as sufficient evidence that the AI investment cycle is ending. Our assessment remains that positioning and technical selling are playing a greater role than a broad deterioration in industry fundamentals. Demand for AI infrastructure remains substantial, with persistent memory supply constraints providing one illustration. However, strong demand alone offers little certainty about which companies will ultimately earn attractive returns, particularly as competition intensifies. Earlier technological revolutions provide a useful reminder that early market leadership does not necessarily translate into lasting investment success. The coming cloud revenue figures from the largest technology groups (hyperscalers) should provide a clearer indication of whether AI adoption is keeping pace with expectations. In our view, this supports retaining selective AI exposure within a more balanced global equity portfolio. We highlighted the risks of concentration and made the case for diversifying beyond AI and technology in our year-end outlook published in August. Our conviction remains unchanged: portfolios should draw on a broader range of earnings drivers, particularly when expectations for a narrow group of companies remain demanding. Healthcare and Swiss equities can provide a defensive counterweight, while Indian equities offer exposure to a different mix of growth opportunities. Broadening allocations beyond US equities and AI should help investors to participate in long-term earnings growth while reducing dependence on a single investment cycle.
COMMODITIES
Gold and silver: Who is selling?
Carsten Menke, Head Next Generation Research, Julius Baer
The trend in the precious metal markets has not changed. Pressure persists, but it is not clear to us who is behind the latest leg lower. Holdings of physically backed products remain very resilient, particularly for gold, and speculative selling does not seem very significant either. One potential source of selling pressure could be Chinese investors being forced to raise cash in reaction to the country’s recent crackdown on offshore capital holdings. Short-term price risks seem skewed to the downside, but the longer-term outlook remains compelling. We remain Constructive on gold and Neutral on silver.
Pressure on precious metals persists. Gold prices are pushing down towards USD 4,000 per ounce and silver has broken below USD 55 per ounce. While the trajectory of the trend has not changed significantly since prices peaked early in the year, it is not clear to us who is behind the latest leg lower. Typically, there is quite a close co-movement between precious metal prices and the holdings of physically backed products. Purchases of such products lift prices and selling pushes them lower. That said, there has been a remarkable disconnect recently, particularly for gold. Holdings of physically backed gold products are up by around 70 tonnes since summer while prices are down more than 13%. We have not seen significant selling by speculative futures traders either, who typically move in the same direction as the market. Also, the usual suspects, such as a stronger US dollar or higher US bond yields, have been absent during the past few days. So, who is selling? One potential source of pressure could be Chinese investors being forced to raise cash as a result of the country’s recent crackdown on offshore capital holdings. Footing the tax bill could necessitate the liquidation of parts of their precious metals positions, creating a source of selling pressure that is not immediately visible in the usual market positioning data. This is a thesis based on the latest available news, the timing of the sell-off in early European hours, and the broader pressure on Chinese assets. Would such selling have the potential to push precious metal prices lastingly lower? Probably not. However, it could spill over into Western markets, prompting physical investors to part with their positions as well, which would then put more pressure on prices. For gold, breaking below USD 4,000 per ounce would likely trigger some selling. Short-term price risks seem rather skewed to the downside, but we still see a compelling longer-term backdrop. Both gold and silver should be supported by concerns about the indebtedness and interest rate burden of the United States. While gold also benefits from central-bank buying as a strong structural source of demand, this is not the case for silver. We stick to our established views: Constructive on gold and Neutral on silver.
BONDS
Core bonds: Bonds are doing bond things again
Afonso Borges, Fixed Income Research, Julius Baer
Core government bonds have regained their traditional risk-off characteristics in recent weeks. Amid increased volatility in risk assets, particularly higher-beta artificial intelligence (AI) names, 30-year yields have fallen 27bp over the past two weeks, the largest rally in 13 months. This is particularly notable, as oil prices have continued to rise.
Core government bonds have regained their traditional risk-off characteristics in recent weeks. Amid increased volatility in risk assets, particularly higher-beta AI names, 30-year yields have fallen 27bp over the past two weeks, the largest rally in 13 months. This is not surprising, as yields have dropped relatively consistently in weeks when our Julius Baer Next Generation Cloud Computing & AI Index dropped more than 5% in the GPT era. The latest moves are particularly notable, as oil prices have continued to rise. Hence, rather than responding primarily to the near-term inflationary impulse, bond markets are placing greater weight on the risk of a negative demand shock. For portfolios, this supports our conviction that government bonds should perform well if concerns over the returns on AI spending lead companies to scale back investment and the resulting slowdown pulls down growth and inflation expectations.
Private markets: Exits still happen at a significant uplift on net asset values
Cyril Demaria-Bengochéa, Head of Private Markets Strategy & Research, Julius Baer
Private market funds exit at an average uplift of 31% on their last net asset values (NAVs). For private equity, the median uplift is 20% and for private infrastructure 23%. This uplift has decreased over time, but managers still mark assets conservatively, a practice that could be justified in the more demanding current exit environment.
Private market funds (excluding those focused on direct lending) sell assets and companies at a significantly higher price than their last recorded NAVs. The International Private Equity and Venture Capital Valuation Guidelines (IPEVs) adopted in 2005 were published to help fund managers appraise the fair market value of private assets and mark them to market. In 2013, Tim Jenkinson, Miguel Sousa, and Rüdiger Stucke from Oxford and Porto Universities documented that NAVs still understated subsequent distributions by around 38.8% for leveraged buyout (LBO) funds on average and 18.1% for venture capital funds. Moreover, according to a 2019 paper by Gregory Brown, Oleg Gredil, and Steven Kaplan from the University of North Carolina, Tulane University, and the University of Chicago, respectively, the best fund managers tend to report NAVs more conservatively. In a paper published in June 2026, Evan Clark from the EDHEC Infrastructure and Private Assets Research Institute confirmed that ‘the mean and median exit price exceeded the prior carrying value by 31% and 19% respectively’. For private equity, the median uplift was 20%. For infrastructure, it was 23%. 78% ‘of all exits were completed above the last reported carrying value and the finding is consistent across investment trusts, time, and buyer types’. 50% had uplifts above 20%. 14% of exits took place at values lower than the most recent carrying value. However, the impact of the IPEVs, which have been revised regularly since 2012, is increasingly visible since ‘exit uplifts have fallen since 2022 relative to the 2015–2021 period’. The author notes that ‘median private equity exit uplifts fell from 23% to ca 17.5%’. Whether this is a temporary or a permanent phenomenon remains to be seen. Notably, ‘the assets acquired in 2020–2022 now face a lower-multiple exit market, potentially offering the risk of discounts at exit’ or lower uplifts. Therefore, NAVs should not be considered as an estimate of the value at exit. Following the analysis of the EDHEC paper, current private market assets in portfolios could be undervalued by 10% – 20%. ***
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