Taiwan Earnings Seen Rising as AI Demand Spreads Across Supply Chain
UBS said Taiwan, backed by its semiconductor and AI hardware supply chain strengths, is seeing demand extend from advanced chips to more supply chain segments, with corporate earnings expected to grow 42% this year and 37% next year, reflecting that AI data center and hardware demand remains the key growth driver.
Hu Junli, Head of Asia Asset Allocation at the UBS Global Wealth Management Chief Investment Office, said via a statement that market uncertainty has risen recently, with bond yields and oil prices moving higher and returns on AI investment also in focus. With the US midterm elections approaching, political headlines may add to short-term volatility, but fundamentals such as corporate earnings, interest rates and energy prices matter more for medium- to long-term markets. For long-term investors, maintaining balanced allocation helps balance growth, income and risk management while uncertainty remains elevated.
S&P Q3 Earnings Seen Up 28% as Focus Shifts to Monetization
On corporate earnings, Hu Junli said that, supported by AI demand, an improving industrial cycle and resilient high-income consumers, S&P 500 third-quarter earnings per share are expected to rise 28% year on year. AI remains a key growth engine, but market focus is shifting from the scale of AI investment to commercialization results, with greater attention on whether companies can turn spending into revenue and returns on investment.
Hu Junli noted that earnings growth in Asia ex-Japan this year has clearly outpaced share price performance, with corporate earnings expected to grow 20% next year. Among them, backed by AI growth, Taiwan corporate earnings will grow 42% this year and 37% next year, reflecting that AI data center and hardware demand remains the key growth driver.
US Yields Hit Highs but Risk-Reward Has Improved
On bonds, bond markets have recently repriced significantly, with the US 10-year Treasury yield at one point rising to 5.36%, a new high since 2002. Inflation, monetary policy, fiscal concerns and AI-related financing needs have all added upward pressure on yields. However, higher yields now provide a larger buffer, with US 2-year, 5-year and 10-year yields needing to rise by about 254, 113 and 65 basis points from current levels before capital losses would offset income over the next 1 year. The recent repricing has improved the risk-reward for high-quality bonds, and yields are still expected to ease modestly over the next 12 months in the base case.
Oil Shock Limited, Stay Positive on Equities and Steady on Bonds
On geopolitics and energy prices, Hu Junli said energy risks warrant attention but are not yet enough to change the overall market direction. It is estimated that the recent rise in oil prices could reduce global GDP growth by about 0.3 to 0.5 percentage points, but AI investment, resilient household balance sheets, and improved adaptability across economies since the 2022 energy shock should help cushion the impact.
Overall, UBS remains positive on the market outlook for equities, recommending diversified core holdings as a base, while trimming excessive single-stock concentration on market strength; in fixed income, it relatively favors selected intermediate- to longer-dated high-quality bonds while staying cautious on the longest maturities; in commodities, energy supply risks further highlight the diversification value of broad commodity allocation.