Another strong month for global markets
While headlines were still focused on Iran, energy prices and wider geopolitical risks, markets began to look through much of the noise. Investors became more comfortable that the worst-case scenario was becoming less likely, oil prices eased from recent highs, and growth assets rallied strongly.
AI was once again at the centre of the move.
Semiconductor stocks were the clear winners. Companies linked to chips, memory, servers and data centres continued to benefit from the huge investment being made into AI infrastructure. Micron was one of the standout names. Once viewed mainly as a cyclical memory business, it is now being valued as an important part of the AI buildout.
That shift is important.
For much of this year, the AI rally has been narrow. Hardware companies have carried most of the gains. But late in May, we started to see signs that the opportunity may be broadening. Software companies, which had previously been left behind as investors worried about AI disruption, began to participate again.
A narrow rally can last for a while, but a broader rally is healthier. If AI moves from being just a hardware story to a wider productivity and software story, the opportunity set becomes much larger.
It’s worth noting 12-month returns for the Nasdaq and S&P500 are over 30% and 25%, respectively, whereas the NZX50 and ASX200 are both just in the green, up 3% and 5% respectively over the same period. So it’s been a tough operating environment in Australasia compared with global markets.
Fund performance
May was a strong month for Pie’s global strategies.
The
Growth UK & Europe Fund was one of the standout performers, returning 6.9% for the month. That was an excellent result, and perhaps an unlikely hero given how much investor attention has been focused on the US.
Performance came from a mix of AI infrastructure, industrial technology, defence and selected software names – and it was a good reminder the AI opportunity is not only in the US. There are important second-order winners in Europe too.
It was also pleasing to see parts of the Australian market rebound, with the
Australasian Growth Fund returning 6% for the month.
Market backdrop
The broader market backdrop remains constructive.
The Iran conflict has been a major source of volatility, particularly for oil and shipping routes. However, markets are now pricing in a better outcome than they were a month ago. That does not mean the risk has disappeared, but investors appear more confident that the situation is improving.
At the same time, earnings momentum has improved.
One of the most interesting developments is that the recovery outside the Magnificent 7 may only just be getting started. Fidelity’s Denise Chisholm recently compared the current market setup to something closer to 1996 in the dotcom era, rather than the late-stage excess of 1999 or 2000. Her point was that strong markets can stay strong for longer than many investors expect, particularly when earnings are improving.1
That’s an important distinction.
If earnings outside the Magnificent 7 are only a few months into an upswing, investors may be underestimating how much runway remains. This is not just a market being driven by buybacks or cost-cutting. It is being driven by capital expenditure, infrastructure spending and genuine investment.
Capital expenditure-led cycles are usually healthier than rallies built only on financial engineering. They flow through to suppliers, infrastructure, energy, equipment, software and labour. They create a wider growth impulse.
That is what we’re starting to see.
Outlook
After a rally like this, it’s fair to ask whether too much optimism is already priced in.
Some areas of the market are stretched. We have taken profits where share prices have moved too far, too fast. We are not chasing every part of the AI trade blindly.
But we remain very positive.
The reason is simple. The AI investment cycle is still building, earnings are improving, and the rally is starting to broaden beyond the first wave of winners. Semiconductors and hardware have led so far. Now software and second-order infrastructure names are beginning to move.
Could we still be early?
We think the answer is yes.
Markets will not move in a straight line. There will be pullbacks, and the geopolitical backdrop will remain uncertain. But the bigger picture is encouraging. We are seeing a powerful investment cycle, better earnings breadth, and more ways to benefit than we had even a few months ago.
Our portfolios remain positioned for growth, but with discipline. We want to own companies that can benefit from this cycle, while staying sensible on valuation and position size. This includes our Australasian portfolios - while markets have been mixed, with small and mid-caps recently edging higher, the economic backdrop is likely to remain unsettled. We’ll stay focused on owning quality businesses with durable earnings, while remaining disciplined on the price we pay.
May was a reminder that bull markets often feel uncomfortable. They climb through doubt, rotate between leaders, and broaden when investors least expect it.
For now, the message is clear: the cycle still has legs.
If you have any questions or concerns about your portfolio, our team is here to help. Please don’t hesitate to get in touch – our contact details can be found
here.
Thank you for your continued trust.