Top Global Equity Themes This Month

AI has gotten the most attention as an equity driver over the last few months, but recently other themes have emerged, in some cases affecting AI and others outperforming it.

Top-Performing Global Stock Themes Over Past Month

1. Oil producers, +10%
2. Genome +9%
3. Cybersecurity +8%
4. Social media +7%
5. Fintech +6%
6. Biotech +6%
7. Regional banks +5%
8. Cloud computing (Saas) +4%
9. Gaming & esports +4%
10. Healthcare innovation +3%

Trends in the Top Five Themes

A look at the top-performing themes, as measured by gains in related ETFs, shows that tech remains a major force driving equities higher worldwide. However, the tech trade has evolved, with pure AI actually lagging behind infrastructure, semiconductor, and memory stocks. Within those areas, certain niches have grown well above their peers, while others are seeing trend reversals from earlier in the year. If the trend can be extrapolated, it could be a rotation out of magacaps into undervalued niches with upside amid stretched valuations. That can be illustrated by the outperformance of other sectors that are traditionally value-based and defensive, such as banking and healthcare-related niches.

Outside of tech, other themes are broad-based, from oil producers rising amid higher crude prices after the Strait of Hormuz was shut again to regional banks supported by higher interest rates. One factor is the disparate impact of global events on regional equities, as rising energy costs leave European equity investors cautious and less able to capitalise on the tech gains that support US stocks. In a potentially worrying sign, market consolidation continues, with M&A driving outperformance among specific stocks. Corporate mergers tend to rise ahead of a market correction, as larger businesses face expansion challenges in mature markets and seek to improve profits through economies of scale rather than organic growth. Here's what's behind the top five performing themes of the last month in global equities:

Oil Producers' Profits Soar

The least surprising leader among top performers over the last month is oil producers, whose stock prices have surged after oil supplies were once again constrained. Analysts anticipate they will post record profits this quarter, and if the war in the Middle East keeps Brent back in the triple digits (it broke $96 per barrel on Thursday), they could see gains continuing through the rest of the year.

Genomics Rising on M&A, Approvals

The genomics subsector is noted for volatility among the active biotechnology sector and has posted strong momentum over the last month as part of overall YTD growth. The CRISPR therapy for sickle cell anaemia earlier in the year helped support the niche. Still, the recent gains came after pharma giant Eli Lilly increased its interest in gene-editing and acquired Ascidian's technology to develop kidney disease drugs. However, the sector is not entirely disconnected from the AI boom, as some hope that LLMs can be leveraged to improve therapeutics, including personalised gene therapies, given the success of mRNA developments.

Cybersecurity Leading SaaS Resurgence

The consensus is that AI is increasing cyberattack risk through accessibility and sophistication and that it has generally been in an upward trend. The sector remains more resilient than the rest of tech, as cybersecurity budgets are harder to cut than discretionary IT spending. In fact, this niche is outperforming even semiconductors lately and is benefiting from a reversal in sentiment for SaaS. Earlier in the year, software companies were under pressure as investors worried that AI would replace enterprise software. Still, the fears have been exaggerated, and software firms are making a comeback. Cybersecurity software seems to be the most uncontroversial option for traders returning to the sector.

Social Media Supported by Ad Spend

The gains in social media stocks over the last month have largely continued the trend from earlier in the year. They can be attributed to ad market stabilisation and growing engagement. Social media icon Meta is anticipated to post blockbuster earnings this quarter and see solid growth through the rest of the year. Ad market growth has made social media a relatively stable growth stock compared to other tech ventures, allowing it to benefit from the rotation out of high-valuation hyperscalers.

Fintech Rises Amid Rate Uncertainty

US major banks outperformed last quarter, suggesting that the financial sector is doing well. Combine that with technology, and a niche of particular investor interest emerges, as illustrated by a surge in investment in fintech firms this quarter. As traditional financial institutions face uncertainty from geopolitical risks, inflation, and interest rates, investors are turning to fintech, which is seeing strong digital growth as it takes market share from traditional finance. This leaves the sector less subject to changes in monetary policy outlook that could affect the broader financial sector.