Portfolio Update: February 2025!

Welcome to the first portfolio update of the year 2025.

2025 has begun with a roller coaster ride as the Trump administration's focus has diverted from “equities” to “bonds,” a marked change from the first presidency stint (covered in detail last week).

Furthermore, Gold has been on a tear, defying all the odds with enormous physical demand from the US.

Nevertheless, the biggest news this week emerged from Japan.

In a surreal development, Japanese inflation came in higher than the latest US CPI reading.

Nobody in their wildest dreams would have thought about this possibility. Moreover, the Japanese 10Y bond yields surged to unbelievable 1.4% levels. This is a warning signal that can’t be ignored at any cost.

Moving to our performance, we have modestly underperformed our benchmark with a YTD return of 3.61%.

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Equities!

Over the last few years, the trend has been a positive correlation between most equity markets globally except for a few (China, etc.).

However, since the last few months, we have seen massive rotation as liquidity chases the undervalued markets while sell-off has been witnessed in the “overcrowded” trades.

In other words, cheap Chinese tech names, European stocks, and certain Latin American markets have significantly outperformed the “overcrowded” big tech names in the US.

Furthermore, when you examine deeply, all the AI-related sectors, including data centres and nuclear power (except some of the semis), are down significantly from their peak, indicating that markets are pricing in some kind of slowdown in AI Capex in the coming months as Deepseek disrupts the industry. Markets fear the meagre return on the enormous capital spending by the big tech names.

Moreover, there are rumours about MSFT cancelling data centre contracts and paying penalties.

As a result, the time has come to be cautious about the future guidance of the AI capex.

When we wrote about the “Explosive Setup” a few weeks ago, we had predicted the following: