HSBC's Overweight Call on US Stocks Amid AI and Global Growth Shifts

The global economy is undergoing a seismic shift, driven by artificial intelligence (AI) innovation and evolving geopolitical dynamics. Against this backdrop, HSBC has reaffirmed its overweight stance on US equities for Q2 2025, emphasizing that the resilience of the US economy and the broadening impact of AI on sectors beyond technology are key catalysts for sustained growth. This article explores how investors can leverage HSBC's insights to navigate sector rotation, rebalance global equity allocations, and capture opportunities amid shifting global growth dynamics.

AI's Expanding Footprint: Beyond Tech, Into Industrials and Healthcare

The AI revolution is no longer confined to Silicon Valley. HSBC highlights that earnings growth in the US is broadening from the "Magnificent 7" tech giants to the "Forgotten 493" stocks in the S&P 500, particularly in sectors like industrials, healthcare, and communications.

• Industrials: Companies are adopting AI to optimize supply chains, enhance predictive maintenance, and streamline manufacturing. For example, Caterpillar (CAT) is using AI to improve equipment performance and reduce downtime, while Boeing (BA) leverages machine learning for aerodynamic design.
• Healthcare: AI-driven diagnostics, drug discovery, and personalized medicine are accelerating. Thermo Fisher Scientific (TMO) and Illumina (ILMN) are at the forefront of genomic data analysis, while telehealth platforms like Teladoc (TDOC) benefit from AI-powered patient care.
• Communications: 5G infrastructure and cloud computing are being transformed by AI, with companies like Cisco (CSCO) and Verizon (VZ) leading the charge.

Global Equity Rebalancing: US and Asia Ex-Japan as Core Growth Engines

HSBC's overweight call on US equities is paired with a strategic pivot toward Asia ex-Japan, where China's AI advancements and UAE's infrastructure boom are creating compelling opportunities.

1. China's Tech Renaissance:
   Beijing's push to close the AI gap with the US is yielding results. The Stargate initiative in the US and China's own investments in semiconductors and cloud infrastructure are fueling equity valuations. Companies like Alibaba (BABA) and Tencent (0700.HK) are integrating AI into e-commerce and fintech, while state-backed tech firms like Semiconductor Manufacturing International Corporation (SMIC) are advancing chip technology.

2. Asia's Undervalued Gems:

3. India: Structural reforms and a young workforce position it for long-term growth. Focus on sectors like IT services (Infosys, INFY.NS) and consumer discretionary (Tata Consumer Products).
4. UAE: The Dubai Expo legacy and Vision 2030 plan are driving housing and tourism investments. Real estate and infrastructure stocks like Emaar Properties (EMAAR.DU) are beneficiaries.

5. Singapore: Stable governance and high dividend yields make it a haven for defensive investors. Stocks like DBS Group (DBSM.SI) and CapitaLand (C31.SI) offer resilience.

6. Europe's Fiscal Stimulus:
   While European growth remains tepid, sectors like industrials (受益于 defense spending) and financials (受益于并购复苏) are gaining traction. HSBC notes opportunities in Germany's Siemens (SIEGY) and France's TotalEnergies (TTE.F), which are pivoting toward green tech and AI-driven energy solutions.

Catalysts vs. Risks: Navigating the Crosscurrents

Key Catalysts:
- US Federal Reserve Rate Cuts: Expected in late 2025, these will ease borrowing costs and support equity valuations.
- Policy Support: Tax cuts, deregulation, and infrastructure spending in the US and China will amplify corporate earnings.
- Global Trade Reconfigurations: Onshoring trends and AI-driven efficiency are mitigating the impact of tariffs and geopolitical friction.

Major Risks:
- Interest Rate Volatility: Prolonged inflation or geopolitical shocks could delay Fed cuts, pressuring bond-sensitive sectors.
- Geopolitical Tensions: US-China trade disputes and Middle East instability remain wildcards.
- Valuation Pressures: Overvaluation in "Magnificent 7" stocks could trigger rotation into cheaper assets.

Investment Strategy: Sector Rotation and Multi-Asset Diversification

To capitalize on these dynamics, investors should:

1. Rotate into AI-Adopting Sectors:
2. Overweight industrials (e.g., CAT, SIEGY) and healthcare (e.g., TMO, ILMN) while trimming exposure to crowded tech names.

4. Rebalance Globally:

5. Allocate 30-40% to US equities, with a focus on the "Forgotten 493" and quality growth stocks.
6. Shift 20-25% to Asia ex-Japan, emphasizing China's tech sector and UAE's infrastructure.

7. Maintain 15-20% exposure to Europe's industrials and financials.

8. Mitigate Risks with Multi-Asset Buffers:

9. Use quality bonds (e.g., 7-10 year Treasuries, UK gilts) to hedge against equity volatility.
10. Deploy non-traditional assets like renewable energy (NextEra Energy, NEE) and gold (GLD) to diversify risk.

Conclusion: Embrace the AI-Driven Transition

HSBC's overweight call on US stocks is not a blanket endorsement of tech dominance but a recognition of AI's capacity to redefine global growth. By rotating into sectors and regions where AI is unlocking productivity gains—such as industrials in the US, tech in China, and infrastructure in the UAE—investors can position themselves to thrive in this new era. While risks like rate uncertainty and geopolitical tensions linger, strategic rebalancing and diversification remain the best defenses against volatility.

In short, the path forward lies in leveraging AI's secular shift while maintaining flexibility to adapt to evolving macro conditions. The opportunities are vast, but success demands a disciplined focus on fundamentals and a willingness to rethink traditional equity allocations.