After several months of facing headwinds, the backdrop is becoming more supportive for India. Higher oil prices had weighed heavily on the country, which imports a significant share of its energy needs, fuelling inflation and putting pressure on the rupee. The recent easing in oil prices is now helping to alleviate these pressures.
At the same time, India had fallen out of favour as investors turned to other Asian markets, particularly South Korea and Taiwan, which offer greater exposure to the artificial intelligence boom. However, investors are now questioning the pace and scale of investment in data centres. These uncertainties are gradually bringing India back onto investors’ radar.
Finally, the Indian economy continues to demonstrate resilience. Consumption remains robust, credit continues to expand, and companies are reporting solid earnings. Against a backdrop of lower oil prices, growing questions surrounding AI investment and a resilient domestic economy, India now appears increasingly well positioned.
As expected, the midterm election week proved particularly turbulent for US equities.
The Democrats’ decisive victory raised a number of questions among investors, particularly around the Artificial Intelligence theme. The sharp setback suffered by Donald Trump’s party was, of course, linked to the conflict in Iran and its repercussions on the purchasing power of US households. However, numerous polls also suggest that growing public frustration with data centres played a role. Even in states traditionally supportive of data centre development, such as Texas, opposition is mounting over the negative externalities associated with these large-scale investments.
Against this backdrop, restrictions on AI-related construction and, more broadly, tighter regulation of these technologies could call into question the computing capacity planned for the coming years, with potential implications for the sector’s leading players.
While questions surrounding this theme are likely to persist over the coming months, until the Democrats take control of Congress in early 2027, we believe it is unlikely that overly restrictive measures will be introduced against AI investments, given their significant contribution to US GDP. On a more positive note, expectations and forecasts for data centre investment are likely to become considerably more reasonable in the years ahead, thereby reducing the risk of disappointments that could prove particularly damaging for equity markets.
The recent correction in US equity indices therefore appears to be nearing its conclusion. Investor expectations have been significantly reset, while sentiment indicators fell to levels of extreme pessimism at the end of last week. As has traditionally been the case, the midterm elections could therefore mark a low point for US equities, just as a much more favourable seasonal period begins.
The recent contraction in equity valuations is therefore prompting us to increase our exposure to US equities within our asset allocation. Economic fundamentals remain excellent, as illustrated by the latest employment data released at the end of last week. We view the recent correction as a healthy reality check for investors and expect high-quality stocks to rebound by year-end.
Oil prices fell sharply over the week. They were weighed down by expectations of a swift resolution to the conflict following the US elections, while the strong rebound in Middle Eastern exports, now close to pre-conflict levels, added further downward pressure.