S&P 500 CAPE at 68x spurs rotation to Chinese tech, UK stocks

Top fund managers are rotating out of US AI stocks into Chinese technology, UK high-dividend equities and global energy as the S&P 500's CAPE ratio hits a record 68x.

The S&P 500's cyclically adjusted P/E ratio hit a record 68x, driving fund managers to rotate from US AI stocks into Chinese tech and UK equities.

"The US AI trade has become dangerously concentrated, with just a handful of mega-cap tech companies controlling roughly $1 trillion in capital expenditure," said Alexander Chartres, a fund manager at Ruffer LLP.

The rotation accelerated July 9 as South Korea's Kospi index crashed 5.4%, entering a technical bear market with a roughly 20% decline from its peak. Capital flowed into Hong Kong-listed tech stocks, pushing the Hang Seng China Enterprises Index up as much as 4.5% and sending Alibaba's Hong Kong shares surging over 13%. Goldman Sachs' thematic research team recommended clients shift positions from Korean AI trades to the "China AI value chain."

The shift matters because the S&P 500's CAPE ratio, when adjusted for earnings that also sit well above long-term trends, reaches 68x — surpassing even the 44x peak of the 2000 dot-com bubble, according to Panmure Gordon analyst Joachim Klement. Fidelity International portfolio manager Ian Samson warned that AI-driven semiconductor demand, while real, is "backed by roughly $1 trillion in capital expenditure controlled by just a few large tech companies," creating acute downside risk if spending slows.

Chinese Tech Offers AI Exposure at a Discount

Chartres noted that Chinese technology companies offer similar AI "option value" to their US peers but trade at far lower valuations because of political risk and domestic economic weakness. "If you think about who provides cloud computing services globally, it's essentially the US and China, each with a handful of names," he said.

UK Dividends and Energy Fill the Hedge Gap

For investors seeking to avoid tech entirely, Tomiko Evans, chief investment officer at Crossing Point Investment Management, highlighted UK equities as a natural hedge. The UK market's composition — heavy in financials, energy, healthcare and consumer staples — contrasts sharply with the tech-dominated US indices, she said. Chartres added that energy stocks, particularly oilfield services companies, benefit from rising infrastructure investment and serve as an inflation hedge when bonds fail to provide diversification.

This article is for informational purposes only and does not constitute investment advice.