CLSA: U.S. Stock Rally Nearing Its End, Emerging Markets Allocation Value Stands Out
Claire Weston
CLSA strategist Shaun Cochran says the US stock rally has entered its final phase and recommends overweighting emerging markets — the key risk is that widening credit spreads force Big Tech to cut AI capex, undermining US valuations.
Why does CLSA think the US rally is running out of road?
Cochran's call: US equities are in the "final phase" of this rally.
This means → he sees the current gains as momentum-driven, not backed by improving fundamentals.
The trigger he flags: credit spreads keep widening — borrowing costs rise, and the market starts pricing in higher default risk. If that happens, tech giants may be forced to cut AI capital expenditure.
In plain terms = when big companies pay more to borrow, they spend less on AI; cut that spending, and the pillar holding up US valuations starts to crack.
Why are widening credit spreads the key catalyst?
Cochran frames widening credit spreads → Big Tech cuts AI capex as the core path to a broader market downturn.
This means → much of the current US premium rests on one assumption: AI investment will keep growing.
Once spreads force companies to tighten budgets, that assumption breaks — whether valuations can hold is what Cochran calls the central test for the next phase of market debate.
Why do emerging markets look more attractive?
CLSA recommends investors consider overweighting emerging markets relative to US equities.
Cochran highlights China's technology base in open-source AI and robotics, arguing it gives China a competitive edge against the US.
This means → if US stocks come under pressure from AI-spending cuts while China sustains its growth narrative through homegrown tech, capital may rotate from US equities into emerging markets.
In plain terms = the US story is "spend big to build AI"; China's story is "build it for less" — the latter holds up better when money gets tight.
Content is for reference only, not financial advice.