00:00Earlier this year, we had a lot of diversification flows coming into Europe.
00:05And since the RAN escalation began, you know, back three months ago, that completely stopped.
00:12So all the flows basically started to go into the U.S. week after week, flows into the U.S.,
00:17basically nothing into Europe.
00:19So then when you have a market pullback, we're not participating as much in the pullback because we didn't participate
00:25as much in the rally to begin with.
00:27And then within Europe, I mean, you could take a tactical view.
00:32You can kind of look through the current volatility.
00:35We prefer to do the latter.
00:37We just refreshed our sector model.
00:39We would actually, on this volatility, we would be doubling down on the AI complex within Europe.
00:45So we've already liked the semis, number one in our model.
00:49But, I mean, the fundamentals are just outstanding and they're just going higher.
00:54We also like mining.
00:55We would be buying it on this dip as well.
00:58Capital goods we just upgraded.
01:00So let me ask you about that, about Europe's AI complex then.
01:02Is that trade, is it linked to your view on the AI theme more broadly?
01:06Or is it for the reasons that you've described, the fact that Asia and the U.S. have moved in
01:10different directions sometimes to Europe?
01:12Is it kind of detached from your broader global AI view?
01:15It's linked to the global view.
01:17But, of course, in Europe, we don't have as much retail participation.
01:20So we've lagged the moves in the U.S. and in Asia.
01:24So it's linked to the global view, but it's not as volatile in the current market volatility.
01:32And it has more catch-up to do as the trade, the AI trade overall is going to continue to
01:36broaden.
01:37Do you have a lot of conviction on the European AI theme right now than the U.S. one, based
01:41on pricing and how far they've come?
01:43I mean, me personally, I have a lot of conviction on the European AI trade, but I haven't compared them
01:48side by side because I focus on Europe.
01:50How broad-based is that view on European AI?
01:52And are there parts of the stack that you want to be leaning into more than other parts?
01:56And you pointed out there's a smaller number, clearly a much smaller number of players.
01:59So is it a fairly broad-based view, anything related to AI that sits within European tech, you want to
02:05lean into that?
02:06Or is it, do you bifurcate it a little bit?
02:08I mean, there's definitely different pockets.
02:10So there's the AI capex trade, where in the U.S. you can argue that half of the market cap,
02:18at least, if S&P is exposed to this AI capex trade.
02:21In Europe, it's about 15% of the European, MSCI Europe, or SXXP.
02:27That's our favorite part of the complex, and that's especially semis.
02:31And there's various cap goods, which are now the largest weights in the cap goods index.
02:37There's powering AI, that's utility, that's taken a bit of a breather, but we still like it longer term.
02:42We think it's kind of a grind higher trade.
02:44And then there is AI ROI efficiency, which is less of a focus for the market, but we really like
02:52the banks for multiple reasons.
02:54One of them being that they're the first in line to see the ROI benefits.
02:59The banks are the first in line to see the ROI benefits of AI.
03:03Yes.
03:03That's interesting.
03:04Is your call on miners, your positive call on European miners, is that also an AI story?
03:10That's also.
03:11Well, copper, our commodity strategist estimates about one-third of demand growth is AI linked.
03:17But copper has other drivers as well.
03:20There's supply constraints, supply disruptions.
03:23There's a lot of inventory building both in China and in the U.S.
03:28So it's a dynamic story, but it is AI related.
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