When former President Trump returned to the White House, he had a clear agenda: to ‘Make America Great Again.’ This move, however, also influenced economic dynamics across the globe. For many investors, the excitement around the U.S. stock market is palpable, but there’s also a sense of caution. The S&P 500, for instance, has seen a 15% increase over the last year, and with interest rates stabilizing, economic forecasts are shifting towards a more optimistic outlook.
Yet, with this growth comes multiple questions. Are the booming ‘Magnificent 7’ stocks—like Apple, Amazon, Microsoft, and others—overvalued, particularly due to the hype surrounding artificial intelligence (AI)? Moreover, will unconventional foreign policies adversely affect the U.S. economy? Acknowledging such uncertainties, many investors are now considering diversification, especially towards regions like China, according to Willem Sels, the Global Chief Investment Officer of HSBC’s private banking.
Sels emphasizes that while the U.S. continues to demonstrate economic resilience, geopolitical uncertainties are prompting investors to seek a balance in their portfolios. Traditionally, the focus has been on emerging markets, but now even developed markets are garnering attention. “When clients approach us, our primary advice is to create a global portfolio. It’s wise to minimize exposure to your home country, especially if it’s also where your business operates,” Sels comments. He notes that many clients are eager to explore investments beyond the U.S.
The dominance of U.S. tech giants in the stock markets plays a significant role in these diversifying strategies. The ‘Magnificent 7’ stocks have been the main growth drivers, which raises concerns. If these stocks face any turbulence, it could have serious implications for overall portfolios. To counter this risk, Sels suggests diversification across various sectors and regions. “It’s essential not just to focus on growth stocks, but also to explore value stocks. Sector and geographical diversification should be part of the strategy,” he advises.
Another factor contributing to the diversification trend is the evolving economic policies in the U.S., particularly concerning its growing national debt. Investors are contemplating what a reduction in reliance on the U.S. dollar might mean for their investments. Interestingly, even though there were brief outflows from the bonds and equity markets, clearer policy direction has helped stabilize the situation.
Sels further explains, “Investors are looking to spread their assets, not necessarily abandoning the U.S. entirely.” While there was initially excitement about European stocks, this interest was short-lived. Many Asian investors struggle to find promising new companies in Europe, often associating it with slower growth compared to the dynamic environment in China.
China, in recent weeks, has seen renewed interest from European investors. This shift is partly driven by the booming AI industry, with a focus on competitive companies that are reshaping the economic landscape. The Central Finance and Economic Affairs Commission in China has recently outlined key strategies to enhance product quality and address issues of competition and overcapacity. This proactive stance signals optimism for future earnings growth in China.
Sels believes that this change in focus could mark a turning point for investors traditionally skeptical of Chinese competitiveness. He notes that expectations for earnings growth are beginning to rise, which was a barrier for many who previously viewed Chinese companies as overly competitive with little profitability. “Now, we’re witnessing a shift back to China, which is partly fueled by the need to diversify away from U.S. assets,” he asserts.
As the conversation around diversification continues, China has emerged as a viable option to balance risk and reward. The share prices in Beijing are often more affordable, presenting attractive opportunities within the AI sector. According to HSBC’s recent analysis, stocks related to the AI ecosystem are witnessing significant growth, highlighting the potential for lucrative investments.
Moreover, while companies in the U.S. have historically outperformed their Chinese counterparts in terms of returns on AI investments, the gap is narrowing. U.S. investments in AI return significantly more compared to those in China, yet the affordability of Chinese stocks still offers compelling opportunities for investors.
While concerns about over-dependence on American companies linger, the overall fundamentals of the U.S. economy remain robust, suggesting that fears of an impending recession might be overstated. Sels remains optimistic, arguing that the advancements in AI represent more than just a temporary boom; they’re indicative of a fundamental, structural shift in the economy.
By diversifying investments towards China, investors are not just seeking to mitigate risk but are also tapping into a vast reservoir of potential in one of the world’s largest economies.
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Original Text – https://fortune.com/2025/08/28/investors-diversification-regions-ai-bargains-us/