Schroders global portfolio manager Simon Webber pointed out in August 2024 that a financial market adjustment led to a decrease in stock valuations, reflecting uncertainty in the US economic outlook. However, due to strong corporate profit growth and the prospect of looser monetary policy, stocks quickly regained lost ground. After nine months of very strong performance, the stock market is more susceptible to adjustments, but company fundamentals remain solid, and increased volatility can provide opportunities for reallocation when mismatches occur in the financial markets. Regarding the potential returns and risks of global stock investments, Simon Webber stated five key points. Firstly, despite its long history, the UK remains one of the most attractive valuation markets globally. Stocks in markets outside the US have more attractive valuations, especially in the UK, Japan, and emerging markets. Furthermore, apart from the large "tech giants" growth stocks (which are driving up the overall price-to-earnings (P/E) ratio of the S&P 500 index), the valuation level of the US stock market does not appear to be too high. While these tech giants benefit from investment opportunities in relevant themes and strong fundamentals, other industries in the financial market have been struggling in a difficult operating environment, largely suppressing revenue and profit growth. Secondly, over the past year, a small number of stocks led to most of the gains in the stock market, resulting in very low market breadth. It is widely expected in the financial market that this gap will narrow, with overall market profit growth accelerating and the profit growth of tech giants significantly slowing. Over the past 18 months, profit growth for large US tech companies has been very strong, driven by a new round of cost control and sustained revenue growth. In general, these companies still have excellent business and strong fundamentals, but compared to other companies, they are more likely to face downward risks in terms of revenue and profit performance. From a regional perspective, stock market returns are also expected to expand. Compared to the US economy, the European economy will be more affected by interest rate cuts, while Japan's real wages have turned positive after several months of contraction. Interest rate cuts will provide further support for these regions. In particular, European consumers have a higher proportion of variable rate mortgages (compared to the US) and businesses rely more on bank loans. In contrast, the topics discussed in the US financial market have shifted from controlling inflation to avoiding economic recession. While an economic recession in the US is not our base case, some regions may be at risk of catching up. Thirdly, the improvement trend of corporate profits in Japan is underestimated, which will continue to support the Japanese stock market. Currently, the Tokyo Stock Exchange and various government agencies are currently implementing reforms aimed at improving corporate governance and capital efficiency. These measures should help to more effectively utilize excess funds and increase the ownership rate of stocks, which is extremely low compared to other developed markets. Therefore, the financial market is paying more attention to shareholder returns and increasing investment and capital expenditure. As the inflation environment becomes more normal, this also motivates the Bank of Japan to change its policy of controlling the yield curve when most central banks around the world tend to loosen their monetary policies, further focusing on productivity and profitability. Schroders global believes that this will provide more support for the yen, as the depreciation of the yen in the past decade has eroded the returns of foreign investors. Therefore, companies primarily focused on the domestic market in Japan are expected to present more attractive opportunities. Fourthly, the US presidential election in November remains one of the prominent events. The results may have a major impact on geopolitical relations. Overall, both Democratic and Republican candidates have not yet disclosed their policies and policy differences in key areas, and further policy clarity may increase short-term volatility rather than reduce it. Nevertheless, in areas where differences are clear, such as trade tariffs, energy policies, banking regulatory relaxation, and drug pricing, Schroders global believes the impact will be apparent. Regardless of the election outcome, Schroders global expects trade policies to be recalibrated to improve US relations with competitors and prioritize the US's leadership position in the high-tech industry. Lastly, the hype around generative artificial intelligence has been a major driver of stock price growth in the financial market over the past year. Investors are rushing into beneficiaries of the technology sector, including semiconductor and data center sectors. However, the revenue generated by artificial intelligence is less than one-tenth of the amount spent so far. Therefore, the financial market doubts whether there will be enough returns in the future to justify the current level of infrastructure investment. Generative artificial intelligence is still in its early stages, with enormous potential to change business and productivity. However, its current level of electricity consumption, supply constraints, and income growth rate face more rigorous scrutiny. There are also concerns that the current market may be oversupplied with related infrastructure, leading to a period of consolidation for stocks related to artificial intelligence.