What's so interesting is your view on valuations in China, opportunities to be investing in China in this context. Is it ripe for investment? Well, it's a critical question here. Really, the argument for China, and China's big tech in particular, is a valuation argument.

When you take a look at big tech and the types of companies that you have, they're very strong competitors, very strong balance sheets, shareholder-friendly, strong earnings, and very low valuations. In a world in search of low valuations, that's attractive.

But of course, you don't get those low valuations without some headwinds, or headwinds to contend with in China. And of course, that's on the geopolitical side, but it's also on the economic side, whether you're looking at

the property sector or just looking at consumer demand. So there are a lot of considerations. What I think would give investors pause. The upside is that there's a margin of safety that can cover that. So we wouldn't suggest that investors pile all their assets into China, but we

would argue that the valuation opportunity is compelling enough that maybe some exposure would make sense. Well, then you compare and contrast to the valuation lack of opportunity here in the US. I'm looking at a video trading at 47 times, let's call it, future earnings.

We've got a $3.3 trillion market cap; the margin for error is very, very small. When you're considering China, that's—I mean, that's exactly right. So what you have in the U.S.

It's kind of a young Yang compared to what you see in China. So, of course, you have very fundamentally strong companies, a strong economy, and some potential geopolitical concerns, but nowhere near what you're seeing in China.

And yet, the valuation argument isn't there. So, if we're taking a look just over the course of 2024 and we're looking at the Max seven, we saw a price-to-estimated-earnings ratio at the start of the year of

around 35, and today it's around 40. That's not extreme. It's not at the extreme levels that we've seen over the past five years, but it's certainly above that five-year average. And it just means that it's going to take a lot more to surprise investors on

the upside for there to be a positive reaction. And we've seen that over the course of this year, most notably in the summer when Nvidia largely beat expectations, but the market sold off. So I think that just takes a lot of the excess return feel out of

these names. Look at Adobe; case in point, today they managed to deliver on this fiscal quarter, but the forward-looking forecast didn't live up to expectations and it's dragged the stock significantly lower. I'm interested in, though, Alphabet

managing to reach new heights. They want to go so much into individual names, but from an antitrust perspective, are we putting that to the back burner? Are we not worried so much about the power, the domination of these Max sevens? Well, it's an interesting question.

because the antitrust and really the regulation considerations around big tech have been something of an overhang for these companies for quite some time. And now we're starting to see that come to the fore a bit more. I think when we're taking a look at Alphabet and we're looking at some of

these considerations on the regulation or antitrust front in particular, there's still some unknown, some challenges that will come about as these companies kind of navigate exactly how they're going to play out with the antitrust and what steps they're going to actually take.

I don't think that's necessarily clear. And in the meantime, we still have a very strong, fundamentally healthy company that looks to accelerate some of the opportunities. For me, I look, you're helping oversee $57 billion in assets under management at Malta.

I'm interested, therefore, where you do see the risk-reward, right? Right now, is it about diversifying, broadening out from the Mag seven at this moment? Well, listen, I mean, I think it's hard to step away from the Mag seven, most

obviously, because it represents such a large part of the overall market. A third of every dollar in the S&P 500 is going to these names. So it's hard to diversify away from them completely. And yet at the same time, they're all really keying off AI.

And as we've talked about, there isn't as much margin of safety. So as we head into 2025, our outlook calls for balance over conviction. And the way to play that, we think, is maybe to have just a modest underweight.

So some of these mega-cap names, or, you know, the biggest companies in market cap, and then add in some of these small-cap areas that have more relative value and also have some tailwinds. And we'll start to think about trying tax policy or thinking about potentially

lower rates over the course of the next year. And you mentioned rates.  Well, ultimately, should you be in equities from an asset class perspective? Is it all about equities? Is it worth going into the credit side of these tech names?

Well, it's interesting. I think when we're taking a look at where rates are headed, the expectation earlier in the year was that we were going to see potentially, you know, falling rates in a meaningful fashion over the next, call it, 12 months.

But as the economy has come in a lot stronger and as the market grapples with what Trump's policies might look like, I think the expectation is still there for lower rates, but maybe not quite to the same degree as people had previously thought. So when we're looking at fixed

income versus equities, right, I mean, yields are very attractive, but we're seeing this as more of a coupon clipping year and less of a total return year. And in fixed income, we're actually expecting lower, more moderate returns

on the equity side, too. So, in the sense of, and kind of returning to that theme of balance, we're calling for a year for balance on an asset class perspective as well.

Still Betting on the Mag 7

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Bloomberg Technology

The argument for investing in Chinese big tech is primarily based on low valuations.

Chinese big tech companies possess strong fundamentals: strong competition, balance sheets, shareholder-friendliness, earnings, and low valuations.

However, geopolitical and economic headwinds (property sector, consumer demand) pose risks.

While caution is advised, the valuation opportunity warrants some exposure.

US tech valuations, particularly in the MAGA seven, are significantly higher with little margin for error (e.g., a video trading at 47 times future earnings).

US companies are fundamentally strong but lack the valuation appeal seen in China.

US tech valuations (e.g., P/E ratio) are above the five-year average, requiring significant upside surprises for positive market reactions.

Examples like Nvidia and Adobe show that even exceeding expectations doesn't guarantee positive market response.

Antitrust and regulatory considerations are an ongoing concern for big tech companies.

Uncertainty remains regarding the impact of antitrust regulations on Alphabet and other companies.

Despite regulatory challenges, fundamentally strong companies are expected to continue growth.

Diversification away from the MAGA seven is challenging due to their significant market share.

The lack of margin of safety in the MAGA seven suggests a modest underweight position.

The strategy for 2025 focuses on balance, including underweighting mega-cap names and investing in small-cap areas with more value.

Asset Allocation: Equities vs. Fixed Income

Expectations for interest rate reductions have changed due to stronger economic performance and uncertainty around Trump's policies.

Fixed income is viewed as a coupon clipping opportunity rather than a total return play, with moderate return expectations.

A balanced approach is recommended for asset allocation, mirroring the equity strategy.

Still Betting on the Mag 7

Still Betting on the Mag 7

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