HSBC strategist: Tech stocks are overvalued, funds are now rotating towards defensive and financial sectors.

Paul Christopher, Global Investment Strategist at the Wells Fargo Investment Institute, believes that although the growth prospects in the AI field can continue for several years, he advises investors to diversify their investment portfolios. Christopher explains that the bank has recently rotated out of some technology (XLK) and communication services (XLC) sectors, moving towards other sectors with more reasonable valuations while still capturing technology trends. "We have reduced our allocation to the communication services sector. We believe that the valuation in this sector is slightly high. We have rotated this portion of funds to the utilities sector (XLU)," Christopher stated, "which has a P/E ratio of only 20 times, while the P/E ratios of information technology (XLK) and communication services (XLC) are both over 30 times." The strategist pointed out that this portfolio adjustment is tactical in nature and does not completely abandon the technology theme. Christopher also emphasized that emerging markets could be an attractive alternative choice for technology investments. "Consider countries like South Korea, China, Taiwan. Chip manufacturers, hardware manufacturers - we believe this could be another way for investors to participate in long-term themes, while possibly avoiding short-term concentration risks," he specifically mentioned. He suggested, "On the basis of holding positions in the US market, allocating a small proportion to a broad emerging markets portfolio may be a good way to diversify into these markets." The Wells Fargo strategist also noted that the market is seeing a broader sector rotation, with investors moving from the technology sector to defensive sectors. However, he recommended "gradually reducing consumer stocks, restoring the allocation to healthcare (XLV)," while increasing allocations to utilities (XLU), industrials (XLI), and financials (XLF). In the current interest rate environment, financial stocks (XLF) are particularly attractive to Christopher. "If you are looking to diversify your investment portfolio, or avoid over-concentration in the technology sector, financial stocks are a good choice," he explained. His investment logic is based on the expectation of short-term interest rate declines while long-term yields remain stable or slightly rise: "Their financing costs are decreasing. At the same time, the long-term interest rates that make up their income sources remain stable or even rise."