In recent times, the global stock markets have undergone unexpected transformations that can be attributed to a myriad of factorsTo decode the underlying logic of these changes poses a significant challenge, particularly for those still adhering to traditional paradigms of thinkingA comparative glance reveals the distinctive operational characteristics that overseas assets have developed, evident in several key aspects.

First and foremost, it is essential to consider the liquidity-driven factorsThe onset of the pandemic severely impacted the fundamentals of major economies, resulting in temporary economic standstill and creating lasting scars on growth trajectoriesIn response, many governments embarked on substantial liquidity injections to stimulate their economiesThis pandemic response led to economic prosperity and high inflation in certain sectors, thereby exerting unprecedented pressure and inducing divergence in asset prices

For instance, in 2022, the Federal Reserve initiated rapid interest rate hikes, triggering widespread adjustments in equity asset pricesNotably, a stark disparity emerged within the market, with the leading blue-chip stocks experiencing relatively modest price changes, while growth-oriented assets, particularly those in the semiconductor and electric vehicle sectors, saw price corrections of around 70%. Similarly, shares of numerous unprofitable publicly traded companies experienced even more significant downturnsHowever, assets benefiting from high interest rates and those related to the post-pandemic restructuring of global supply chains showcased resilience and subsequently displayed robust performanceThis interest rate shock has lingered into 2023, with many stock prices declining over the year, leaving only a select few to rally, mainly propelled by technological innovation.

Moreover, inflation in most countries has not been accompanied by conspicuous economic stagnation

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Except for the European continent, major economies managed to navigate the scars of the pandemic by leveraging ample liquidity, allowing growth trajectories to rebound swiftly from the depths of external shocksFrom an inflation perspective, elevated inflation rates were largely transmitted through the economic spectrumDespite a notable increase in nominal price levels across the economy, the transmission mechanisms remained relatively smooth, devoid of severe congestionThis created a conducive spiral among prices, wages, and subsidies, forming a holistic income cycleThe fundamental conclusion drawn is that interest rate hikes complemented the infusion of liquidity, with the impact of liquidity on equity assets peaking in 2022. By 2023, the economic recovery following the pandemic, supported by liquidity, led to rising stock market trends and structural differentiation.

Another driving factor for the pronounced structural trends observed in the global overseas stock markets can be attributed to disruptive technological innovation, particularly in artificial intelligence

The launch of ChatGPT by OpenAI at the beginning of last year catalyzed a widespread embrace and proactive investment in AI across various industries and nationsGovernments have displayed positive stances on this emerging technologyThe semiconductor hardware sector, vital in supporting this technological wave, has witnessed exceptional stock performances, highlighting companies like Nvidia as standout performersHowever, the ultimate impact of this wave of AI innovation on the global economy remains to be measured over timeThe repercussions of AI innovation have been both positive and negative for the tech landscape itself, with current applications largely concentrated in text and image/video processingTraditional IT firms have faced significant disruptionsIt is important to note that AI operates as a disruptive, double-edged sword that could either revolutionize industries or render certain business models obsolete.

In contrast, innovations in other sectors have not displayed comparable prominence

For example, in biomedicine, the PD-1 targeted therapy was one of the last major breakthroughsThe success of mRNA technology in COVID-19 vaccines had elements of serendipity, while progress in its application for cancer vaccines remains arduousIn 2023, the capital markets saw a surge in popularity for weight-loss drugs, during which many promising biomedical firms from earlier speculative bubbles faced downturns due to the slow application of technological innovationOther sectors, such as autonomous driving, have similarly encountered delays in realizing application expectations due to stringent demands in real-world scenarios.

The third factor entails the global economic restructuring and resource valuation driven by geopolitical dynamicsSince two years ago, geopolitical upheavals have gradually infiltrated various critical regions, compounded by pandemic-related economic repercussions and ongoing trade disputes

This has led to a new wave of global economic restructuring characterized by a resurgence of regional economic integration, while free trade has faced headwindsObservably, various commodities have seen price support, performing robustly, from oil and natural gas to agricultural products, steel, and non-ferrous metalsFurthermore, traditional upstream industries in the U.S., such as steel, electricity, and construction machinery, have benefitted from domestic nearshoring trends over the two years, reflecting favorable stock performance.

Lastly, a notable characteristic is the competitive edge of leading enterprises in the global economy and the risk premiums associated with heightened risk-averse sentimentThe seven major tech companies in the U.Shave exhibited marked differentials since last yearNotably, while Microsoft and Facebook have reaped benefits from AI integration, Nvidia emerged as the primary beneficiary, controlling a substantial share of the GPU market for image processing

Tesla’s performance, however, has waned due to delayed commercialization of its autonomous driving technologyThe scenario in Europe has also deviated from prior expectations, with leading multinational companies represented by the twelve largest indicators on European indices showcasing promising stock performances that transcend local economic tiesThese firms encompass diverse sectors such as pharmaceuticals, consumer goods, and high-end manufacturing, thus maintaining robust financial health irrespective of regional economic fluctuations.

The performance of these prominent enterprises highlights the underlying competitive strengths they possess in their respective global sectors, enjoying heightened investor interest amidst prevailing risk-averse sentimentOver the past year and a half, these companies' stock performances have consistently outpaced the average index levels, underscoring the pronounced trend of structural differentiation within major industries across the globe.