In January, the FTSE All-World Index modestly climbed by 0.6%. We saw a continuation of the equity returns pattern seen last year, with a large gap between a small number of winners and the rest of the market, and poor performance generally from Chinese equities. It is worth remembering that a small number of stocks tend to drive the overall market performance. This was more pronounced than usual during last year. However, these technology stocks had fallen substantially in 2022. These technology companies have continued to deliver impressive earnings growth and their shares have seen multiple expansion, with Nvidia the notable exception. It is natural, particularly for investors who resisted technology exposure over the last year, to begin talking of an asset bubble. Irrational exuberance and a fear of missing out have seen the prices of many assets become elevated beyond their intrinsic values. For now, at least, we continue to think there is further upside to intrinsic value for several companies with exposure to Artificial Intelligence (AI).

The model portfolio (USD) gained 0.5%.

On the positive side, shares of recent purchase Nvidia, the designer of the chip used by most AI systems, were the best performer gaining 24.2%. The firm unveiled three new desktop graphics chips that will increase local, rather than cloud, AI capabilities. While current multiples look high given the expected growth, they are not outrageously so with consensus revenue forecasts of 60% for 2025 and earnings growth of 69%. Berkshire Hathaway shares delivered good returns of 7.6%, although there was little news there may be heightened expectations of a reduction in insurance claims which would benefit the firm. Microsoft’s share price gained ahead of a positive earnings update which showed 26.3% year-on-year earnings growth, 5.6% ahead of expectations. During January the stock gained 5.7%.

Samsung’s shares declined by 10.4%. The firm reported a 35% reduction in operating profit, 24% behind estimates. While this was the sixth consecutive quarter of declining operating profit, a rebound in consumer demand for electronics and of memory pricing is anticipated. The share price was not helped by a $2 billion placing of stock by the Lee family, likely to meet their personal tax bills. Charles Schwab (-8.6%) reported results that were ahead of expectations but highlighted a difficult operating environment with lazy cash balances being moved away from the firm, though the longer term remains encouraging. NXP Semiconductor (-8.3%) also saw disappointing share price performance on the back of reduced estimates for car sales. Our investment case for NXP remains predicated on a huge increase in their average content per vehicle. While the automotive industry is known to be cyclical, we expect to see growth for NXP.

Towards month-end, there was some reprieve for Chinese stocks given news that authorities plan to provide stimulus measures to support the market. There have been many false dawns for beleaguered investors in China. Challenges remain, not least the potential for increased US tariffs that Presidential candidate Donald Trump plans, and the forced selling and general exodus from Chinese exposures. In contrast to many other areas around the world, market multiples of Chinese companies are at lows. The portfolio remains modestly overweight in China.