Key Beneficiaries of Next Year's Interest Rate Cut: 'AI, Security, Obesity'

AI Rally Likely to Continue Next Year

As central banks around the world are expected to start cutting interest rates as early as the second quarter of next year, there are forecasts that rallies will continue in the U.S. stock market next year following this year. Some also predict that returns will be higher than this year. Amid this, investors pointed to promising investment sectors such as artificial intelligence (AI) and cybersecurity.

AI, Cybersecurity, Obesity Treatments

According to Bloomberg News on the 3rd (local time), a MarketLivePulse survey conducted from November 27 to December 1 with a total of 595 institutional and individual investors found that 67% of respondents identified the AI sector as the most promising investment area for next year. Following AI, cybersecurity (20%) and obesity treatments (8%) were cited. Bloomberg analyzed, "The stock price increase of AI-themed stocks greatly outperformed the obesity treatment and cybersecurity themes, which stood out this year."

Nvidia, considered a representative beneficiary of AI, saw its stock price surge 216% this year (based on the closing price on the day). Microsoft (MS), Amazon, and Meta, leading the AI industry, also saw their stock prices soar between 56% and 170% this year on AI expectations. Danish pharmaceutical company Novo Nordisk, leading the obesity treatment market with 'Wegovy,' recorded a 45% increase in its stock price. Although this is below the level of AI-related stocks, Novo Nordisk surpassed luxury group Louis Vuitton Mo?t Hennessy (LVMH) to become the largest market capitalization company in Europe amid the ongoing strong rally.

Neil Gallagher, a fund manager at GAM Investments, said in an interview with Bloomberg, "Strong demand for obesity treatments continues, but the related industry is somewhat overvalued compared to its fundamentals," adding, "I have reduced my position in Novo Nordisk by about half over the past few months." However, he evaluated the stock outlook for Novo Nordisk positively.

[Image source=AFP Yonhap News]

Respondents' investment outlooks for big tech were divided. Forty-five percent of all respondents said that tech stocks would continue their rapid growth next year following this year. On the other hand, 39% believed that tech stocks are overvalued and that there would be no further gains. Marta Norton, Chief Investment Officer (CIO) for the Americas at Morningstar Wealth, said, "Tech stocks traded at the most attractive valuations among all sectors this year," but added, "It is uncertain whether this trend will continue into next year."

Interest Rate Cuts 'Positive'... Election Outcome a 'Variable'

Respondents said that preference for the stock market would increase with interest rate cuts next year. More than half of respondents, 57%, said they would increase their investment allocation to bonds (31%) and stocks (26%).

Regarding next year's presidential election, more than half of respondents (53%) said it would influence their investment decisions. Among them, 27% expected a negative investment environment if former President Donald Trump wins, while 26% anticipated that President Joe Biden’s re-election would pose a burden on the investment environment. Forty-seven percent of respondents said that the U.S. presidential election scheduled for November next year would not affect their investment decisions.

RBC Capital Markets forecast that the S&P 500 index would be around the 5,000 level at the end of next year, up 9% from the current level, when the election takes place. Lori Calvasina, Head of U.S. Equity Strategy at RBC Capital Markets, said, "In election years, the S&P 500 index has shown an average annual return of 7.5%, which is lower than the typical return of 13.5%," adding, "Next year's election will bring significant uncertainty to the stock market."

[Image source=Yonhap News]

This content was produced with the assistance of AI translation services.