by Jurrien Timmer, Head of Global Macro, Fidelity Investments
Asia tour 2026
It’s my first time to Seoul, which is my first stop along a 3-week client roadshow throughout APAC for our colleagues at FIL, and I’m a fan! The people are friendly and accessible, the food is great, and Korea’s neo-Confucianism history and culture are fascinating. As my tour guide explained, Korea is the most western of the Asian countries, molded in part by the rescue from communism by the west. I beat the jetlag like a pro, choosing a Korean Air flight that left LAX at midnight and arrived 13 hours later at 5 am Korean time. Eight hours of sleep on the plane, no naps during the first day, a good workout (laps in the hotel pool) that afternoon when I “hit the wall,” and finally an early bedtime. Not having a sleep cycle interrupted is in my view the best jetlag hack. Tomorrow and Tuesday my FIL colleagues will take me around Seoul to visit a number of large institutional investors, and on Wednesday I fly to Tokyo.
With more rumblings about a memorandum of understanding in the middle east, the market continues to progress higher. The right tail of an earnings boom remains in force, while the left tail of another rate scare continues to lurk quietly in the background. When and how this melt-up will end and whether there will be a price to pay for all the beta that we are “over-earning” remains to be seen, but rebalancing into strength and maintaining balance through diversification remains as important as ever. Let’s explore below (in speed round form).
The stock market is slightly off its highs but the ex-AI side of things is showing strength, indicating that the market is broadening. This is good.
The equal-weighted S&P 500 made new highs last week, as the Mag7 remained under some pressure.
Long yields remain eerily quiet at around 4.5%, while TIPS breakevens are plummeting as oil prices are down from their highs. The decline in breakevens seems out of proportion to the fact that the 12m forward oil price is still quite elevated.
WTI oil has now fallen from its peak of $119 to $85, which is promising for the inflation outlook. Yet, the forward contract remains near its March high at $74 while oil inventories continue to fall. Finding an offramp from the Iran conflict is a race against time that the markets seem willing to bet on. I’m not so convinced.
The left tail of a rate scare remains a risk that for now is lurking in the background even as real rates climb higher. The higher real rates go, the more correlated stocks and bonds get, the bigger the risk that a vol event happens for equities. But for now, the 10-year is well behaved at 4.5%.
However, both the semis and the Mag7 continue to trade at reasonable valuations, as the charts below show. Booming earnings are so far keeping me on the boom side of the boom-bubble spectrum.
The semiconductor group above is now trading at 20x forward earnings, and the Mag7 below is trading at the bottom of its P/E band at 25x. Not bad.
If the US stock market does end up taking back some of that beta that we are currently overharvesting, what will be a safe place to hide? For me, the non-AI side of the S&P 500 as well non-US developed markets offer that boring but safer place to hide. We see below that the US will likely not under-perform non-US markets until its earnings also underperform, but the playing field seems to be leveling out.
Below we see that the payout (dividend plus buybacks) around the world is competitive to the US, with Japan in the lead.
The payout ratio and its growth rate are important drivers of both returns and valuation. Yes, EAFE is not as exciting as the US (and EM), but excitement can be a two-way street.
This information is provided for educational purposes only and is not a recommendation or an offer or solicitation to buy or sell any security or for any investment advisory service. The views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Opinions discussed are those of the individual contributor, are subject to change, and do not necessarily represent the views of Fidelity. Fidelity does not assume any duty to update any of the information.
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