Global equity markets delivered an eleventh consecutive monthly gain (MSCI World +0.8% MoM) despite a drawdown in US stocks (S&P 500 -0.8% MoM). The rotation out of US growth stocks continued into February with global value stocks (MSCI Global Value +2.9% MoM) outperforming US growth stocks (Russell 1000 Growth Index -3.4% MoM), the latter cohort having underperformed their global value peers by 12.6% YTD. The underperformance of US growth stocks was particularly apparent in the Magnificent Seven grouping (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, Tesla) of US mega-cap tech stocks (-7.3% MoM) as investors baulked at the hundreds of billions of dollars in AI capex they are guiding to.
The threat of generative AI disruption continued to spread to new sectors as Anthropic released new AI tools for its Claude Cowork software to automate work in fields including human resources, investment banking and design. A viral blog post by a small US research firm, Citrini Research, titled The Global Intelligence Crisis, highlighting a hypothetical economic doomsday scenario triggered by rapid AI adoption, further soured investor sentiment.
IBM (-21% MoM), Booking.com (-15% MoM) and S&P Global (-16% MoM) saw their share prices heavily impacted by the AI disruption theme despite reporting solid earnings. S&P 500 Energy shares (+9.4% MoM) were the leading sector for a second consecutive month as the threat of a US military strike on Iran continued to drive the oil price higher (Brent crude +2.5% MoM/+19% YTD). Investors retreating to the perceived safety of consumer staples companies drove share prices higher in that sector (S&P 500 Consumer Staples +8% MoM/+16% YTD).
Emerging market (EM) shares extended their YTD lead over their developed market (DM) peers into double digits (MSCI EM +5.5% MoM/+15% YTD). The EM outperformance was driven by commodity-producing countries (Brazil +4.1% MoM/South Africa +7.2% MoM). It came despite a struggling Chinese tech cohort (Tencent, Alibaba, Meituan and Baidu down 15%, 16%, 17% and 19% MoM, respectively). Baidu reported revenue declines for the third consecutive quarter while intense competition amongst the Chinese internet retailers appears to be eroding profitability, with rumours of higher VAT for online transactions further souring sentiment towards the sector.
Increasing risk aversion helped drive the US government’s 10-year borrowing rate 0.3% lower during February, with the benchmark interest rate ending the month at 3.9% p.a., its first month-end print below 4% p.a. in over two years.
The US dollar strengthened marginally against most DM peers in February (US Dollar Index +0.6% MoM). However, many EM currencies were stronger against the greenback (Brazilian real +2.7% MoM, Chinese yuan and Mexican peso both +1.4% MoM).
