Equity markets have continued to reach new highs despite a backdrop that, on the surface, should be far less supportive. War in the Middle East, elevated oil prices, tighter financial conditions and policy uncertainty have done little to derail risk appetite. There have been periods of volatility along the way, but none have meaningfully disrupted the broader trend higher. Instead, equities have rallied, credit markets have remained firm, and investors have repeatedly looked through shocks that, in prior cycles, may have triggered a more meaningful repricing.

The engines behind the rally

The strength in equity markets is being driven by an alignment of two forces that are both unusually powerful and highly concentrated.

At the centre is the AI-led investment cycle, which stands out not simply due to the scale of the capex cycle (Chart 1), but its structure. Investment is being driven by a small group of hyperscalers committing unprecedented sums to data centres and supporting infrastructure that by some estimates could reach USD$5 trillion over the next five years; increasingly, companies are tapping global credit markets to fund it. Credit markets, notably, are not acting as a constraint. Heavy issuance has been readily absorbed, with strong demand keeping spreads tight even as supply increases. In Canada, Alphabet’s inaugural maple bond issue amounted to a record CAD$8.5 billion and was very well absorbed. In effect, funding conditions are enabling, not limiting, the economic expansion.

Chart 1: US tech investment has surged
Source: US Bureau of Economic Analysis, Macrobond

At the same time, corporate earnings have been unequivocally strong. The S&P 500 is on track to deliver approximately 28% year-over-year earnings growth in Q1, the fastest pace since 2021. More importantly, this strength has been broad-based. Ten sectors are reporting earnings growth, with seven sectors posting double-digit gains, spanning technology, financials, industrials and materials (Chart 2).

Chart 2: US earnings growth strong and broad-based
Source: FactSet. Note: As of May 21, 2026

While earnings are broad, what is driving revisions, sentiment and capital allocation is a relatively small group of AI and AI-adjacent companies. Yet despite the scale of investment, its direct contribution to GDP growth is still limited. What makes the current environment unusual is that the rally is not purely speculative, as earnings are delivering. So long as the combination of broad earnings resilience holds alongside a concentrated growth engine, the path higher can remain intact.

Disappearing downside risks

If the engine explains the direction of markets, the persistence of the rally reflects the repeated failure of risks to materialize. Geopolitics is the clearest example, with the disruption in the Strait of Hormuz raising oil prices significantly, but not to levels consistent with the scale of the shock. Meanwhile, other macro risks are also being largely looked through. Labour markets continue to soften, though this appears to be bottoming, leaving employment and income growth still sufficient to sustain consumption.

Importantly, inflation has proven persistent. April US producer prices rose sharply, with headline PPI increasing 1.4% month over month, reflecting a surge in energy-related components. Beneath the surface, however, the picture appears benign. Core consumer goods prices in the April CPI report were flat on the month, and core services, while sticky, have not accelerated meaningfully (Chart 3). Additionally, the transmission mechanism appears weaker than in prior cycles – including the post-pandemic period – when rapid wage gains and highly stimulative fiscal and monetary policy reinforced inflation across the economy.

Chart 3: Core services prices relatively contained
Source: US Bureau of Labor Statistics, Macrobond

Markets are not ignoring risks – they are observing that those risks are not translating into negative earnings or growth outcomes and are adjusting accordingly. With each risk that passes without consequence, markets grow more conditioned to look through shocks. Concern fades faster, and positioning rebuilds more quickly.

What could break this positive risk sentiment?

Bond yields have been moving higher, with front-end rates rising sharply and yield curves flattening, a combination typically associated with tightening financial conditions. Since the start of the conflict, US 10-year yields have risen materially, and 30-year yields have breached the psychologically important 5% threshold. Front-end rates have risen even more aggressively, reflecting both inflation pressure and resilient growth. At the same time, risk assets have continued to rally alongside this move, an unusual late-cycle dynamic that is resulting in a system drifting toward ever higher interest rates. Interestingly, the same forces supporting risk assets are also contributing to this tightening. The AI-driven investment cycle is sustaining demand, reinforcing inflation pressures (Chart 4), and keeping policy more restrictive than markets might otherwise expect. In that sense, the optimism driving the rally is also what prevents policy from easing.

Chart 4: Near-term inflation pressures building
Source: US Bureau of Labor Statistics, Macrobond

This creates a growing tension. Historically, higher discount rates and tighter financial conditions have weighed on equity valuations. Policy adds another layer of uncertainty. Central banks are moving away from an easing bias, with growing inflation risks. They are concerned about allowing inflation expectations to become unhinged from their target levels, should the narrow commodity price shock pass through into a reacceleration of core inflation (although the current assumption is that energy disruptions are temporary and manageable). Additionally, in the US, the transition to a new Federal Reserve Chair introduces another unknown that could reverse the previous regime’s flexibility.

Portfolio strategy

In balanced portfolios, positioning remains modestly underweight equities and fixed income. This stance was implemented at the end of the first quarter as markets entered an “inflation shock first, growth risk later” phase. Recession risks have since moderated, leading equities to now trade near all-time highs, embedding relatively optimistic growth assumptions. As a result, patience and flexibility remain important. We look to add risk opportunistically during periods of market weakness or positioning-driven selloffs. We favour Canadian equities over US equities, with a secular positive view on Canada.

Within fixed income portfolios, the environment remains challenging as strong growth, sticky inflation and higher energy prices continue to put upward pressure on bond yields. Markets have steadily reduced expectations for interest rate cuts and begun to price the possibility of rate hikes in both Canada and the US. This has resulted in yield curve flattening and higher rates. We expect this trend to continue, though not in a linear fashion. Duration exposure will continue to be managed tactically with a bias to be shorter-than-benchmark, with an emphasis on flexibility rather than large directional positions.

Fundamental equity portfolios remain positioned around businesses with resilient earnings. While the broader recovery remains intact, we have paused further increases in cyclical exposure to help mitigate downside risk. We have also reduced exposure to business models most vulnerable to AI-driven disruption, while selectively increasing exposure to sectors positioned to benefit from the broader AI-related capex and infrastructure cycle, including commodity-linked industries.

The current environment continues to favour an opportunistic approach, and we look to add to risk cautiously.

The post We’re going up, up, up … is it our moment? appeared first on Groupe financier Connor, Clark & Lunn ltée.

Les marchés boursiers ont continué d’atteindre de nouveaux sommets malgré un contexte qui, à première vue, devrait être beaucoup moins favorable. La guerre au Moyen-Orient, les prix élevés du pétrole, le resserrement des conditions financières et l’incertitude entourant les politiques n’ont pas fait dérailler l’appétit pour le risque. Il y a eu des périodes de volatilité en cours de route, mais aucune n’a considérablement perturbé la tendance générale à la hausse. Au lieu de cela, les actions se sont redressées, les marchés du crédit sont demeurés solides et les investisseurs ont, à maintes reprises, ignoré les chocs qui, au cours des cycles précédents, ont peut-être déclenché une réévaluation plus importante.

Les moteurs de la remontée

La vigueur des marchés boursiers est attribuable à l’alignement de deux forces exceptionnellement puissantes et concentrées.

La première étant le cycle d’investissement alimenté par l’IA, qui se démarque non seulement par l’ampleur du cycle des dépenses en immobilisations (graphique 1), mais aussi par sa structure. Les investissements sont stimulés par un petit groupe de fournisseurs de services infonuagiques à très grande échelle qui engagent des sommes sans précédent dans des centres de données et des infrastructures de soutien qui, selon certaines estimations, pourraient atteindre 5 000 G$ US au cours des cinq prochaines années; de plus en plus, les sociétés tirent parti des marchés mondiaux du crédit pour financer ces investissements. Les marchés du crédit, en particulier, n’agissent pas comme une contrainte. Les fortes émissions ont été facilement absorbées, la solide demande maintenant les écarts de taux serrés, même si l’offre augmente. Au Canada, la première émission d’obligations feuille d’érable d’Alphabet a atteint un niveau record de 8,5 G$ CA et a été très bien absorbée. En fait, les conditions de financement favorisent l’expansion économique au lieu de la limiter.

Graphique 1 : Les investissements dans les technologies ont bondi aux États-Unis
Source : US Bureau of Economic Analysis et Macrobond.

Parallèlement, les bénéfices des sociétés ont été manifestement solides. L’indice S&P 500 est en voie d’enregistrer une croissance des bénéfices d’environ 28 % sur 12 mois au premier trimestre, soit le rythme le plus rapide depuis 2021. Plus important encore, cette vigueur a été généralisée. Dix secteurs ont annoncé une croissance de leurs bénéfices, sept secteurs ayant enregistré des gains de plus de 10 %, notamment les technologies de l’information, la finance, l’industrie et les matériaux (graphique 2).

Graphique 2 : La croissance des bénéfices aux États-Unis est solide et généralisée
Source : FactSet. Remarque : Au 21 mai 2026.

Bien que les bénéfices soient généralisés, un groupe relativement petit de sociétés d’IA et liées à l’IA dicte les révisions, l’humeur et la répartition du capital. Pourtant, malgré l’ampleur des investissements, la contribution directe à la croissance du PIB demeure limitée. Ce qui rend le contexte actuel inhabituel, c’est que la remontée n’est pas purement spéculative, car les bénéfices sont élevés. Tant que la résilience généralisée des bénéfices se poursuivra parallèlement à un moteur concentré de croissance, la trajectoire vers le haut peut rester inchangée.

Disparition des risques de baisse

Si le moteur explique l’orientation des marchés, la persistance de la remontée reflète le fait que les risques ne se sont pas matérialisés à plusieurs reprises. La situation géopolitique est l’exemple le plus évident, les perturbations dans le détroit d’Ormuz ayant fait grimper les prix du pétrole de façon importante, mais pas à des niveaux compatibles avec l’ampleur du choc. Par ailleurs, d’autres risques macroéconomiques sont largement ignorés. Les marchés de l’emploi continuent de ralentir, mais ils semblent avoir touché un plancher, de sorte que la croissance de l’emploi et des revenus demeure suffisante pour soutenir la consommation.

Fait important, l’inflation s’est révélée persistante. En avril, les prix à la production aux États-Unis ont fortement augmenté, l’IPP global ayant progressé de 1,4 % sur un mois, en raison de la forte hausse des composantes liées à l’énergie. Sous la surface, toutefois, la situation semble modérée. Les prix des biens de consommation de base indiqués dans le rapport d’avril sur l’IPC ont fait du surplace pendant le mois, et les prix des services de base, bien que toujours élevés, n’ont pas beaucoup augmenté (graphique 3). De plus, le mécanisme de transmission semble plus faible que lors des cycles précédents, y compris la période après la pandémie, lorsque les hausses rapides des salaires et les politiques budgétaires et monétaires très expansionnistes ont renforcé l’inflation à l’échelle de l’économie.

Graphique 3 : Les prix des services de base sont relativement contenus
Source : US Bureau of Labor Statistics et Macrobond.

Les marchés n’ignorent pas les risques – ils observent que ces risques ne se traduisent pas par des bénéfices négatifs ou une croissance négative, et s’ajustent en conséquence. Chaque fois que le risque passe inaperçu, les marchés deviennent enclins à faire abstraction des chocs. Les préoccupations s’estompent plus rapidement et le positionnement se reconstruit plus rapidement.

Qu’est-ce qui pourrait briser cet optimisme à l’égard du risque?

Les taux obligataires ont augmenté, les taux à court terme ayant fortement grimpé et les courbes de taux s’aplatissant, une combinaison habituellement associée au resserrement des conditions financières. Depuis le début du conflit, les taux des obligations américaines à 10 ans ont augmenté considérablement, et les taux des obligations à 30 ans ont dépassé le seuil psychologiquement important de 5 %. Les taux à court terme ont augmenté encore plus fortement, en raison des pressions inflationnistes et de la résilience de la croissance. Par ailleurs, les actifs risqués ont continué de se redresser parallèlement à cette hausse, une dynamique inhabituelle de fin de cycle qui fait en sorte que le système se dirige vers des taux d’intérêt toujours plus élevés. Fait intéressant, les mêmes forces qui soutiennent les actifs risqués contribuent également à ce resserrement. Le cycle d’investissement alimenté par l’IA soutient la demande, renforce les pressions inflationnistes (graphique 4) et fait en sorte que la politique monétaire est plus restrictive que ce que les marchés auraient pu prévoir. En ce sens, l’optimisme qui alimente la remontée est également ce qui empêche l’assouplissement de la politique monétaire.

Graphique 4 : Les pressions inflationnistes à court terme s’intensifient
Source : US Bureau of Labor Statistics et Macrobond.

Cela crée des tensions croissantes. Dans le passé, la hausse des taux d’actualisation et le resserrement des conditions financières ont pesé sur les valorisations boursières. La politique monétaire ajoute une autre couche d’incertitude. Les banques centrales délaissent l’assouplissement monétaire, en raison des risques croissants d’inflation. Elles craignent que les attentes d’inflation ne soient plus ancrées dans leurs niveaux cibles si le choc étroit des prix des matières premières se traduit par une réaccélération de l’inflation de base (même si l’on suppose actuellement que les perturbations énergétiques sont temporaires et gérables). De plus, aux États-Unis, la transition vers un nouveau président de la Réserve fédérale crée une autre incertitude qui pourrait renverser la souplesse du régime précédent.

Stratégie de portefeuille

Dans les portefeuilles équilibrés, les actions et les titres à revenu fixe demeurent légèrement sous-pondérés. Cette position a été mise en œuvre à la fin du premier trimestre, lorsque les marchés sont entrés dans une phase de « choc inflationniste d’abord, puis risque de croissance plus tard ». Les risques de récession se sont depuis atténués, de sorte que les actions se négocient maintenant près de sommets historiques, intégrant des hypothèses de croissance relativement optimistes. Par conséquent, la patience et la souplesse demeurent importantes. Nous cherchons à accroître le risque de façon opportuniste en périodes de faiblesse des marchés ou de ventes massives attribuables au positionnement. Nous privilégions les actions canadiennes par rapport aux actions américaines, et nous sommes optimistes à long terme à l’égard du Canada.

Dans les portefeuilles de titres à revenu fixe, la conjoncture demeure difficile, car la forte croissance, l’inflation persistante et la hausse des prix de l’énergie continuent d’exercer des pressions à la hausse sur les taux obligataires. Les marchés ont constamment revu à la baisse leurs attentes à l’égard des réductions de taux d’intérêt et ont commencé à anticiper la possibilité de hausses des taux directeurs au Canada et aux États-Unis. Par conséquent, la courbe des taux s’est aplatie et les taux ont augmenté. Cette tendance devrait se poursuivre, mais pas de façon linéaire. La durée continuera d’être gérée de façon tactique, mais sera de préférence plus courte que celle de l’indice de référence, avec un accent sur la souplesse plutôt que sur d’importantes positions directionnelles.

Les portefeuilles d’actions fondamentales continuent d’investir dans des sociétés affichant des bénéfices résilients. Bien que la reprise dans son ensemble demeure intacte, nous avons interrompu l’augmentation des placements cycliques afin d’atténuer le risque de baisse. Nous avons également réduit la pondération des modèles d’affaires les plus vulnérables aux perturbations causées par l’IA, tout en augmentant de façon sélective la pondération des secteurs qui sont positionnés de manière à profiter du cycle plus large des dépenses en immobilisations et des infrastructures liées à l’IA, y compris les secteurs liés aux matières premières.

Le contexte actuel continue de privilégier une approche opportuniste, et nous cherchons à accroître le risque avec prudence.

The post Toujours plus haut … est-ce notre moment? appeared first on Groupe financier Connor, Clark & Lunn ltée.

New orders reached a four-plus-year high in April but DM flash results imply a pull-back in May. The forecast here is for a further decline in H2, reflecting an inflation-driven slowdown in global six-month real narrow money momentum from a February peak – see chart 1.

Chart 1

A further consideration is that orders have been boosted recently by demand front-loading and stockbuilding motivated by supply concerns, implying future payback.

PMI new orders are contemporaneously correlated with MSCI World earnings revisions, whether expressed in terms of the revisions ratio (net proportion of analyst estimates upgraded each month) or the one-month percentage change in aggregate forecast earnings per share – chart 2.

Chart 2

Both revisions measures remained strong in May but the expected new orders decline suggests a moderation, at least, ahead.

Current earnings strength is focused on the US and AI-spend beneficiaries, with downgrades in Europe, China and EM ex. Korea / Taiwan – chart 3. The suggestion of European relative weakness was echoed in the flash PMIs.

Chart 3

Sector wise, IT extended its lead, with consumer sectors continuing to suffer earnings downgrades – chart 4. The revisions ratio gaps between IT and consumer discretionary / staples reached new records in data extending back to 1995 – another manifestation of economic disparities.

Chart 4

The post Is earnings momentum peaking? appeared first on Groupe financier Connor, Clark & Lunn ltée.

New orders reached a four-plus-year high in April but DM flash results imply a pull-back in May. The forecast here is for a further decline in H2, reflecting an inflation-driven slowdown in global six-month real narrow money momentum from a February peak – see chart 1.

Chart 1

A further consideration is that orders have been boosted recently by demand front-loading and stockbuilding motivated by supply concerns, implying future payback.

PMI new orders are contemporaneously correlated with MSCI World earnings revisions, whether expressed in terms of the revisions ratio (net proportion of analyst estimates upgraded each month) or the one-month percentage change in aggregate forecast earnings per share – chart 2.

Chart 2

Both revisions measures remained strong in May but the expected new orders decline suggests a moderation, at least, ahead.

Current earnings strength is focused on the US and AI-spend beneficiaries, with downgrades in Europe, China and EM ex. Korea / Taiwan – chart 3. The suggestion of European relative weakness was echoed in the flash PMIs.

Chart 3

Sector wise, IT extended its lead, with consumer sectors continuing to suffer earnings downgrades – chart 4. The revisions ratio gaps between IT and consumer discretionary / staples reached new records in data extending back to 1995 – another manifestation of economic disparities.

Chart 4

The post Is earnings momentum peaking? appeared first on Groupe financier Connor, Clark & Lunn ltée.

China’s semiconductor ambitions returned to the spotlight following the recent meeting between President Trump and President Xi. While the US administration reportedly signaled willingness to permit exports of certain downgraded or older-generation AI GPUs into China, the more notable takeaway may have been China’s relatively muted reaction. Rather than relying on controlled access to foreign technology, China appears increasingly focused on accelerating the development of its own semiconductor ecosystem.

While the AI cycle continues to demonstrate remarkable strength, China’s push toward semiconductor self-reliance increasingly appears to represent an additional structural driver for the industry – one that could persist largely independent of the pace or duration of the current AI infrastructure cycle.

A focus on a domestic opportunity for self-reliance

The scale of the opportunity remains significant. China is already the world’s largest semiconductor consumption market, representing well over USD200 billion of annual chip demand and likely continuing to grow meaningfully over the coming decade. Yet domestic self-sufficiency across many semiconductor categories remains relatively low, leaving substantial room for domestic substitution over time. Even within analog and power semiconductors – categories generally viewed as more achievable for domestic suppliers – the opportunity remains large. Industry estimates suggest China’s power management semiconductor demand alone already represents a multi-billion-dollar market, while domestic suppliers still account for a relatively modest share. If China materially increases domestic semiconductor content over the coming years, tens of billions of dollars of annual value could gradually shift toward Chinese suppliers.

China still faces important technological bottlenecks. Advanced EUV lithography remains effectively inaccessible, while gaps persist across certain leading-edge manufacturing equipment, inspection and metrology tools and advanced materials. However, recent developments suggest China continues to make incremental progress across multiple parts of the semiconductor stack despite these restrictions. Domestic memory players have advanced meaningfully in NAND and DRAM, while progress in high-bandwidth memory (HBM), advanced packaging and other areas continues to evolve. More broadly, as the saying goes, necessity is often the mother of invention, and technological constraints themselves can become catalysts for accelerated domestic innovation.

Lessons from solar, batteries and EVs

Importantly, China has already demonstrated an ability to achieve global scale and competitiveness in industries once dominated by foreign incumbents. The country now holds leading positions across solar panels, batteries and electric vehicles, while also becoming increasingly competitive in industrial automation and advanced manufacturing more broadly. Regardless of one’s geopolitical perspective, China’s long-term willingness to commit capital, engineering talent and policy support toward strategic industries should not be underestimated.

As the AI infrastructure cycle evolves, bottlenecks have gradually expanded beyond AI accelerators and memory into broader areas of the semiconductor supply chain. More recently, power management integrated circuits (PMICs) have emerged as an area experiencing tighter supply-demand dynamics, driven by rising demand from data centres and AI infrastructure. AI servers require increasingly sophisticated power architectures, translating into higher semiconductor content and more advanced PMIC requirements. These products typically command higher pricing and more attractive margins, while stronger AI-related demand may also help stabilize pricing conditions across broader analog semiconductor markets.

Against this backdrop, we believe companies positioned within China’s domestic semiconductor ecosystem could benefit from these longer-term trends. One example within our Emerging Markets portfolio is Silergy Corp. (6415 TT), a China-based analog semiconductor company and one of China’s leading domestic suppliers of PMICs.

Why PMICs are important

PMICs are semiconductors responsible for regulating and distributing electrical power within electronic systems, helping ensure that processors, servers, vehicles and industrial equipment receive power efficiently, reliably and safely. Unlike leading-edge AI accelerators, analog and power management semiconductors are embedded across a broad range of everyday electronic applications.

Headquartered in Hangzhou, Silergy designs analog and mixed-signal semiconductors serving industrial, automotive, consumer electronics, computing and communications applications. While the company is gaining increasing exposure to AI servers and data-centre-related applications, its business remains diversified across multiple end markets, which in our view provides a more balanced way to participate in both semiconductor self-reliance and broader electronics content growth.

Silergy is already one of China’s leading domestic PMIC suppliers, yet its market share within China’s broader analog and power semiconductor market likely remains relatively small, suggesting a potentially long runway for continued share gains over time.

While market attention remains concentrated on the most visible AI beneficiaries, some of the more durable investment opportunities may emerge deeper within the semiconductor supply chain and away from the headlines. China’s semiconductor ambitions could ultimately prove to be one of the more important long-term trends still unfolding beneath the surface of today’s AI cycle.

The post Necessity, the mother of invention appeared first on Groupe financier Connor, Clark & Lunn ltée.

China’s semiconductor ambitions returned to the spotlight following the recent meeting between President Trump and President Xi. While the US administration reportedly signaled willingness to permit exports of certain downgraded or older-generation AI GPUs into China, the more notable takeaway may have been China’s relatively muted reaction. Rather than relying on controlled access to foreign technology, China appears increasingly focused on accelerating the development of its own semiconductor ecosystem.

While the AI cycle continues to demonstrate remarkable strength, China’s push toward semiconductor self-reliance increasingly appears to represent an additional structural driver for the industry – one that could persist largely independent of the pace or duration of the current AI infrastructure cycle.

A focus on a domestic opportunity for self-reliance

The scale of the opportunity remains significant. China is already the world’s largest semiconductor consumption market, representing well over USD200 billion of annual chip demand and likely continuing to grow meaningfully over the coming decade. Yet domestic self-sufficiency across many semiconductor categories remains relatively low, leaving substantial room for domestic substitution over time. Even within analog and power semiconductors – categories generally viewed as more achievable for domestic suppliers – the opportunity remains large. Industry estimates suggest China’s power management semiconductor demand alone already represents a multi-billion-dollar market, while domestic suppliers still account for a relatively modest share. If China materially increases domestic semiconductor content over the coming years, tens of billions of dollars of annual value could gradually shift toward Chinese suppliers.

China still faces important technological bottlenecks. Advanced EUV lithography remains effectively inaccessible, while gaps persist across certain leading-edge manufacturing equipment, inspection and metrology tools and advanced materials. However, recent developments suggest China continues to make incremental progress across multiple parts of the semiconductor stack despite these restrictions. Domestic memory players have advanced meaningfully in NAND and DRAM, while progress in high-bandwidth memory (HBM), advanced packaging and other areas continues to evolve. More broadly, as the saying goes, necessity is often the mother of invention, and technological constraints themselves can become catalysts for accelerated domestic innovation.

Lessons from solar, batteries and EVs

Importantly, China has already demonstrated an ability to achieve global scale and competitiveness in industries once dominated by foreign incumbents. The country now holds leading positions across solar panels, batteries and electric vehicles, while also becoming increasingly competitive in industrial automation and advanced manufacturing more broadly. Regardless of one’s geopolitical perspective, China’s long-term willingness to commit capital, engineering talent and policy support toward strategic industries should not be underestimated.

As the AI infrastructure cycle evolves, bottlenecks have gradually expanded beyond AI accelerators and memory into broader areas of the semiconductor supply chain. More recently, power management integrated circuits (PMICs) have emerged as an area experiencing tighter supply-demand dynamics, driven by rising demand from data centres and AI infrastructure. AI servers require increasingly sophisticated power architectures, translating into higher semiconductor content and more advanced PMIC requirements. These products typically command higher pricing and more attractive margins, while stronger AI-related demand may also help stabilize pricing conditions across broader analog semiconductor markets.

Against this backdrop, we believe companies positioned within China’s domestic semiconductor ecosystem could benefit from these longer-term trends. One example within our Emerging Markets portfolio is Silergy Corp. (6415 TT), a China-based analog semiconductor company and one of China’s leading domestic suppliers of PMICs.

Why PMICs are important

PMICs are semiconductors responsible for regulating and distributing electrical power within electronic systems, helping ensure that processors, servers, vehicles and industrial equipment receive power efficiently, reliably and safely. Unlike leading-edge AI accelerators, analog and power management semiconductors are embedded across a broad range of everyday electronic applications.

Headquartered in Hangzhou, Silergy designs analog and mixed-signal semiconductors serving industrial, automotive, consumer electronics, computing and communications applications. While the company is gaining increasing exposure to AI servers and data-centre-related applications, its business remains diversified across multiple end markets, which in our view provides a more balanced way to participate in both semiconductor self-reliance and broader electronics content growth.

Silergy is already one of China’s leading domestic PMIC suppliers, yet its market share within China’s broader analog and power semiconductor market likely remains relatively small, suggesting a potentially long runway for continued share gains over time.

While market attention remains concentrated on the most visible AI beneficiaries, some of the more durable investment opportunities may emerge deeper within the semiconductor supply chain and away from the headlines. China’s semiconductor ambitions could ultimately prove to be one of the more important long-term trends still unfolding beneath the surface of today’s AI cycle.

The post Necessity, the mother of invention appeared first on Groupe financier Connor, Clark & Lunn ltée.

Emerging market equities have outperformed the rest of the world year to date.

Source: NS Partners and LSEG Datastream

The asset class is decisively breaking out of a long-run trend of underperforming developed markets.

Source: Bank of America, May 2026.

What is driving the turnaround? Looking at contributions to returns since 2023, earnings have been the clear driver for emerging market equities, with multiple expansion only a minor contributor.

Source: Jefferies quant research, April 2026.

Earnings growth has been the key driver

Source: NS Partners and LSEG Datastream.

In fact, for the year to date as at the end of April, valuation compression has been a headwind for the asset class.

Source: Jefferies quant research, April 2026.

EM equities are now cheaper than they were in beginning of 2025 despite strong returns.

Source: NS Partners and LSEG Datastream.

We flagged in previous pieces that the signals we track suggested emerging market equities were positioned to outperform their developed market counterparts. Based on the headline numbers it appears this call has been vindicated (albeit over a short period) with the welcome combination of cheaper valuations and a strengthening earnings outlook.

What got us particularly excited was the potential for a US dollar bear market driving a new virtuous circle, as illustrated below.

We have had positive spurts in a number of markets which enjoyed easing currency pressure courtesy of a falling dollar and better liquidity. However, this has been overwhelmed by the US AI boom which is bleeding out into emerging markets with North Asia the clear winner.

It has been a narrow rally driven by US capex and the AI supply chain

This dramatic improvement in earnings and performance largely reflects a boom in South Korean and Taiwan tech companies. If you strip these markets out of EM, the return picture for the wider asset class is subdued.

YTD outperformance of EM equities has been entirely due to Korea/Taiwan, with the rest of the asset class lagging DM

Source: NS Partners and LSEG Datastream

The demand boom for key technologies that underpin the infrastructure needed to meet a massive build out of AI technologies and the flow through to earnings growth is swamping interest in other positive stories across the asset class.

We are modestly overweight AI supply chain leaders in South Korea and Taiwan, who control key supply bottlenecks across memory and logic chips, thermal cooling, signals and switching, electrification and data centre assembly. Earnings growth and margins for these companies are downstream of rising investment from US hyperscalers seeking vast amounts of compute power to develop cutting-edge large language models.

Source: Koyfin, April 2026.

Portfolio names in these areas have posted outstanding gains over the last 12 months. While we have been quick to trim positions when stock valuations exceed what we think is reasonable, we have not run away from the rally and have maintained the overweight as we can see the fundamentals accelerating. For example, the supply-demand mismatch for high bandwidth memory is so great that memory giants SK Hynix and Samsung Electronics are now among the most profitable companies in the world.

Source: Jefferies March 2026.

Earnings growth in South Korea has been so strong that valuations still look modest despite the market doubling

Samsung Electronics, Hynix and Micron are the only three companies in the world capable of producing HBM chips that are crucial components in Nvidia GPU clusters. And yet, Samsung and Hynix trade at a price to earnings multiples of less than 5x.

Source: Deutsche Bank 2026.

Optically, cheap valuations reflect a market view that these remain deeply cyclical businesses in an industry with a history of violent booms and busts and thus lack the durability in the earnings growth to award a higher multiple.

Looking at the table above, there may be a good argument that the DRAM giants are over-earning and will attract competitors. On the other hand, we are mindful that AI innovation represents a major technological shift and the possibility that this could structurally alter demand dynamics in an oligopolistic industry controlling essential and hard to replicate technologies.

Maintaining conviction with tight risk management

While the pace of capex spending by the US hyperscalers and the cash flows going to hardware suppliers is extraordinary, the parabolic stock moves in a number of the names that we hold naturally make us twitchy. Major uncertainty remains over how LLM technologies will evolve and be monetised, whether competitor frameworks will gain dominance, and if real-world bottlenecks in memory and energy may ultimately slow the pace of development.

We have been careful to trim winners and recycle profits elsewhere in emerging markets where we are seeing other opportunities that excite us. Equally, relatively modest valuations and earnings visibility on our time horizon represent a significant upside risk which leaves us happy to maintain our overweight to the AI supply chain.

The post Rallying EM equities reflect an AI-powered earnings surge appeared first on Groupe financier Connor, Clark & Lunn ltée.

Emerging market equities have outperformed the rest of the world year to date.

Source: NS Partners and LSEG Datastream

The asset class is decisively breaking out of a long-run trend of underperforming developed markets.

Source: Bank of America, May 2026.

What is driving the turnaround? Looking at contributions to returns since 2023, earnings have been the clear driver for emerging market equities, with multiple expansion only a minor contributor.

Source: Jefferies quant research, April 2026.

Earnings growth has been the key driver

Source: NS Partners and LSEG Datastream.

In fact, for the year to date as at the end of April, valuation compression has been a headwind for the asset class.

Source: Jefferies quant research, April 2026.

EM equities are now cheaper than they were in beginning of 2025 despite strong returns.

Source: NS Partners and LSEG Datastream.

We flagged in previous pieces that the signals we track suggested emerging market equities were positioned to outperform their developed market counterparts. Based on the headline numbers it appears this call has been vindicated (albeit over a short period) with the welcome combination of cheaper valuations and a strengthening earnings outlook.

What got us particularly excited was the potential for a US dollar bear market driving a new virtuous circle, as illustrated below.

We have had positive spurts in a number of markets which enjoyed easing currency pressure courtesy of a falling dollar and better liquidity. However, this has been overwhelmed by the US AI boom which is bleeding out into emerging markets with North Asia the clear winner.

It has been a narrow rally driven by US capex and the AI supply chain

This dramatic improvement in earnings and performance largely reflects a boom in South Korean and Taiwan tech companies. If you strip these markets out of EM, the return picture for the wider asset class is subdued.

YTD outperformance of EM equities has been entirely due to Korea/Taiwan, with the rest of the asset class lagging DM

Source: NS Partners and LSEG Datastream

The demand boom for key technologies that underpin the infrastructure needed to meet a massive build out of AI technologies and the flow through to earnings growth is swamping interest in other positive stories across the asset class.

We are modestly overweight AI supply chain leaders in South Korea and Taiwan, who control key supply bottlenecks across memory and logic chips, thermal cooling, signals and switching, electrification and data centre assembly. Earnings growth and margins for these companies are downstream of rising investment from US hyperscalers seeking vast amounts of compute power to develop cutting-edge large language models.

Source: Koyfin, April 2026.

Portfolio names in these areas have posted outstanding gains over the last 12 months. While we have been quick to trim positions when stock valuations exceed what we think is reasonable, we have not run away from the rally and have maintained the overweight as we can see the fundamentals accelerating. For example, the supply-demand mismatch for high bandwidth memory is so great that memory giants SK Hynix and Samsung Electronics are now among the most profitable companies in the world.

Source: Jefferies March 2026.

Earnings growth in South Korea has been so strong that valuations still look modest despite the market doubling

Samsung Electronics, Hynix and Micron are the only three companies in the world capable of producing HBM chips that are crucial components in Nvidia GPU clusters. And yet, Samsung and Hynix trade at a price to earnings multiples of less than 5x.

Source: Deutsche Bank 2026.

Optically, cheap valuations reflect a market view that these remain deeply cyclical businesses in an industry with a history of violent booms and busts and thus lack the durability in the earnings growth to award a higher multiple.

Looking at the table above, there may be a good argument that the DRAM giants are over-earning and will attract competitors. On the other hand, we are mindful that AI innovation represents a major technological shift and the possibility that this could structurally alter demand dynamics in an oligopolistic industry controlling essential and hard to replicate technologies.

Maintaining conviction with tight risk management

While the pace of capex spending by the US hyperscalers and the cash flows going to hardware suppliers is extraordinary, the parabolic stock moves in a number of the names that we hold naturally make us twitchy. Major uncertainty remains over how LLM technologies will evolve and be monetised, whether competitor frameworks will gain dominance, and if real-world bottlenecks in memory and energy may ultimately slow the pace of development.

We have been careful to trim winners and recycle profits elsewhere in emerging markets where we are seeing other opportunities that excite us. Equally, relatively modest valuations and earnings visibility on our time horizon represent a significant upside risk which leaves us happy to maintain our overweight to the AI supply chain.

The post Rallying EM equities reflect an AI-powered earnings surge appeared first on Groupe financier Connor, Clark & Lunn ltée.

Earnings remain resilient, but growth is concentrated, macro risks are building and selectivity is becoming critical.

Resilience in a tense environment

The Q1 reporting season underscores a growing divergence in global earnings. While US earnings growth remains robust, it is increasingly concentrated in AI-related industries. In contrast, Europe remains in a low-growth, late-cycle environment, while Japan continues to benefit from structural tailwinds. At the same time, a gap is emerging between the AI narrative and broader earnings. While AI-related sectors are seeing strong growth, the benefits have yet to spread across the wider economy.

The conflict in Iran has driven a sharp rise in oil prices and renewed volatility across equities and bonds, reflecting concerns around inflation and energy supply disruptions. It has also led markets to reassess the path of interest rates, with higher energy costs reducing the likelihood of near-term policy easing. This could test the resilience of corporate earnings through 2026.

So far, corporate earnings in developed markets have been more resilient than expected, despite successive macro shocks. Part of this resilience reflects lessons learned over the past five years. The pandemic period, in particular, has led to improved inventory management, stronger cost discipline and a greater willingness to implement cost optimization programs. More broadly, companies appear better equipped to manage their cost base, and in some cases, have demonstrated persistent pricing power. This has been particularly evident in industrials and technology, where contract structures and product differentiation have enabled effective price pass-through. These factors have helped preserve margins even as demand has plateaued or softened.

However, without a swift resolution to the conflict in Iran, global growth could decelerate further, exposing more vulnerable areas of the market. Discretionary spending, manufacturing and energy-intensive sectors such as transportation and logistics are likely to be most at risk. Rate-sensitive sectors, including residential real estate and REITs, could also face valuation pressure.

Looking at the broad small-cap market, balance sheets are structurally more fragile today than they were a decade ago when companies were deleveraging following the Global Financial Crisis. In the current environment, smaller companies are more exposed to rising interest costs and refinancing risk, particularly at the lower end of the quality spectrum.

Positioning for resilience

In this environment, a quality-focused approach centred on sustainable EPS growth remains critical. Our strategy continues to prioritize companies with strong balance sheets and high returns on equity.

As illustrated by our portfolio characteristics, our Global and International Small Cap strategies exhibit the following attributes:

Source: IDA, Bloomberg, MSCI

The lower leverage of these strategies points to less balance-sheet risk and better ability to navigate higher-for-longer rates. At the same time, the higher operating margins and stronger ROE, alongside faster forward EPS growth, are indicative of higher-quality businesses with more durable profitability and earnings power than the benchmark.

In addition, we continue to focus on companies exposed to structural growth drivers. Themes such as electrification, automation, health-care innovation, defence and reshoring offer improved visibility over the medium term. These areas can provide both defensive characteristics in a slowdown and operating leverage in a recovery.

The post Narrow strength, rising risk appeared first on Groupe financier Connor, Clark & Lunn ltée.

Earnings remain resilient, but growth is concentrated, macro risks are building and selectivity is becoming critical.

Resilience in a tense environment

The Q1 reporting season underscores a growing divergence in global earnings. While US earnings growth remains robust, it is increasingly concentrated in AI-related industries. In contrast, Europe remains in a low-growth, late-cycle environment, while Japan continues to benefit from structural tailwinds. At the same time, a gap is emerging between the AI narrative and broader earnings. While AI-related sectors are seeing strong growth, the benefits have yet to spread across the wider economy.

The conflict in Iran has driven a sharp rise in oil prices and renewed volatility across equities and bonds, reflecting concerns around inflation and energy supply disruptions. It has also led markets to reassess the path of interest rates, with higher energy costs reducing the likelihood of near-term policy easing. This could test the resilience of corporate earnings through 2026.

So far, corporate earnings in developed markets have been more resilient than expected, despite successive macro shocks. Part of this resilience reflects lessons learned over the past five years. The pandemic period, in particular, has led to improved inventory management, stronger cost discipline and a greater willingness to implement cost optimization programs. More broadly, companies appear better equipped to manage their cost base, and in some cases, have demonstrated persistent pricing power. This has been particularly evident in industrials and technology, where contract structures and product differentiation have enabled effective price pass-through. These factors have helped preserve margins even as demand has plateaued or softened.

However, without a swift resolution to the conflict in Iran, global growth could decelerate further, exposing more vulnerable areas of the market. Discretionary spending, manufacturing and energy-intensive sectors such as transportation and logistics are likely to be most at risk. Rate-sensitive sectors, including residential real estate and REITs, could also face valuation pressure.

Looking at the broad small-cap market, balance sheets are structurally more fragile today than they were a decade ago when companies were deleveraging following the Global Financial Crisis. In the current environment, smaller companies are more exposed to rising interest costs and refinancing risk, particularly at the lower end of the quality spectrum.

Positioning for resilience

In this environment, a quality-focused approach centred on sustainable EPS growth remains critical. Our strategy continues to prioritize companies with strong balance sheets and high returns on equity.

As illustrated by our portfolio characteristics, our Global and International Small Cap strategies exhibit the following attributes:

Source: IDA, Bloomberg, MSCI

The lower leverage of these strategies points to less balance-sheet risk and better ability to navigate higher-for-longer rates. At the same time, the higher operating margins and stronger ROE, alongside faster forward EPS growth, are indicative of higher-quality businesses with more durable profitability and earnings power than the benchmark.

In addition, we continue to focus on companies exposed to structural growth drivers. Themes such as electrification, automation, health-care innovation, defence and reshoring offer improved visibility over the medium term. These areas can provide both defensive characteristics in a slowdown and operating leverage in a recovery.

The post Narrow strength, rising risk appeared first on Groupe financier Connor, Clark & Lunn ltée.