Christopher Wood, Jefferies' global head of equity strategy, has made significant adjustments to his Asia ex-Japan thematic portfolio, reflecting shifting market dynamics and performance trends across the region.

Portfolio Rebalancing

Wood has implemented the following changes in his portfolio allocations:

• Reduced India's weight by one percentage point
• Increased China's exposure by two percentage points

These adjustments were made to maintain China's overweight position following changes in neutral weightings. The current portfolio composition stands at:

Performance Overview

India Portfolio

• Q3 Performance: -7.40%
• MSCI India Index Q3: -6.60%
• Since Inception (July 2021):
  • India Portfolio: +81.60%
  • MSCI India Index: +41.90%

Despite recent underperformance, India's long-only portfolio has significantly outperformed its benchmark since inception.

China Portfolio

• Q3 Performance: +23.10%
• YTD Performance: +42.00%

China's portfolio has shown robust performance, particularly in the last quarter.

Asia ex-Japan Portfolio

• Q3 Performance: +8.00%
• MSCI Benchmark Q3: +11.10%

The overall Asia ex-Japan portfolio underperformed its benchmark in Q3, primarily due to its high exposure to India.

Global Portfolio Update

Wood also announced plans to remove Nvidia from the global portfolio, citing valuation concerns. The tech giant will be replaced by Greek infrastructure firm Gek Terna.

These strategic moves by Christopher Wood reflect the dynamic nature of global markets and the continuous need for portfolio rebalancing in response to changing market conditions and valuations.

Christopher Wood, global head of equity strategy at Jefferies, has sounded a stark warning about the current AI-driven rally on Wall Street, cautioning that it could culminate in a "massive overinvestment bust." Wood's concerns stem from the concentrated nature of the market gains and the potential for a self-reinforcing cycle driven by AI-based investment recommendations.

Concentrated Gains and AI Capex Arms Race

According to Wood, nearly 50% of the S&P 500's gains since early 2023 can be attributed to just five companies: four US hyperscalers and Nvidia. This surge is not driven by traditional factors such as trade tensions, but rather by what Wood describes as an "AI capex arms race."

The scale of this investment is staggering. Wood notes that the four largest hyperscalers are projected to spend approximately $350 billion this year alone on AI-related infrastructure. This shift represents a fundamental change in these companies' business models, moving from asset-light to asset-heavy strategies.

Retail-Driven Momentum and Feedback Loops

Wood characterizes the current market momentum as primarily retail-driven. He suggests that many investors may be buying stocks based on recommendations from AI models, creating a reflexive feedback loop that could further fuel the rally.

Valuation Concerns and Commoditization Risk

The strategist points out that US market valuations have reached all-time highs on a price-to-sales basis, indicating potential overvaluation. Moreover, Wood argues that the market has overlooked a crucial lesson from the recent launch of DeepSeek, which demonstrated that large language models could potentially become commoditized.

The Risk of Wasted Investment

Wood emphasizes that if DeepSeek's open-source approach proves successful, much of the current massive spending on AI infrastructure by major tech companies could end up being wasted. This scenario underscores the risk of overinvestment in the AI sector.

Implications for Investors

While the AI revolution promises transformative potential across industries, Wood's warning serves as a reminder of the risks associated with rapid technological shifts and concentrated market rallies. Investors may need to carefully consider the sustainability of current AI-driven gains and the potential for market corrections as the technology landscape evolves.

As the AI arms race continues to heat up, market participants will be closely watching for signs of whether this rally represents a new paradigm in tech investing or, as Wood suggests, a potential bubble that risks a significant correction.