With slowdown approaching, Global X looks to advanced tech stocks

Maier made the comment during a media briefing on Wednesday in which he provided a forecast for the global economy in the second half of this year.

Inflation in the United States is cooling but not fast enough, while core inflation, excluding food and energy prices, remains above the trend forecast by the US Federal Reserve (Fed).

The US labour market is constrained, with two jobs available for every unemployed person, allowing workers to demand higher pay, Maier said, adding that the Feds' potential to be hawkish on the interest rate trajectory in the coming quarters will continue to dominate sentiment in equity and fixed income markets.

He said the inverted yield curve indicates that the market expects an economic slowdown. Fluctuating job data and business sentiment, combined with a purchasing manager index that is still showing signs of weakness, add to the prevailing uncertainty.

"Given this uncertain landscape, investors should exercise caution and be highly selective when it comes to sector exposure," he advised.

Fortunately, economic growth can remain positive but moderate during late cycles. In this context, investors may want to consider defensive stocks, particularly large-cap quality stocks, which can provide downside protection.

Maier said the S&P 500's valuation is currently in line with its 10-year average, with a price-to-earnings ratio of around 22 times. This represents a 25% decrease from the peak seen in 2021.

"It is likely that the markets have already factored in the worst of the negative earnings scenario," he said.

Michelle Cluver, senior portfolio strategist at Global X ETFs, said current market uncertainty emphasises the importance of downside protection.

Aside from focusing on large-cap quality stocks, incorporating thematic exposure in a portfolio can provide long-term diversification benefits as well as flexibility during market cycle shifts.

She cited artificial intelligence (AI), onshore robotics and automation, and electric vehicles as examples of interesting stocks to include in a portfolio.

Despite the recent market rally in AI-related equities, she believes it is critical to remember that AI is a long-term theme with significant staying power.

While the larger names in the US have dominated the recent market rally, there are also opportunities to be found in the broader AI ecosystem, Cluver said.

This ecosystem includes companies in semiconductors, cloud computing, and cyber security, among others, that stand to benefit from the cascading effects of AI advances.

"Given the constant innovation in the AI space, we expect a significant growth trajectory. We expect that the global AI market will grow at a compound annual growth rate of 35.6% to nearly US$300 billion in sales by 2026, which will be 10 times its size in 2020," Cluver said.

Automation will play a critical role in driving efficiency, growth, and transforming production processes as it helps businesses achieve higher levels of productivity by increasing efficiency, lowering costs, and improving product quality, she said.

Meanwhile, robotics, in conjunction with improving technology, is driving the case for adopting automation, assisting in the reduction of labour costs, which will become more expensive over time.

Furthermore, as the world's concern for the environment grows, Cluver anticipates increased adoption of electric vehicles (EVs) as a primary pathway for reducing greenhouse gas emissions throughout the transportation sector.

According to the company's data, EVs are expected to account for 36% of global vehicle sales in 2030 and 55% in 2035. As the world approaches a net-zero economy by the mid-century mark, EVs could account for more than 75% of sales.

Meanwhile, the number of EV deliveries has been increasing, with a greater emphasis on pure EVs rather than hybrids. The vehicle mix has shifted from 62% pure EVs in 2016 to 71% by 2021.

The market for Autonomous Vehicles (AVs) will grow in lockstep with technological advancements, Cluver said, adding that the global market for AVs is expected to reach about $1.8 trillion by 2030.

"As these technologies become more widely adopted, numerous key segments other than vehicle manufacturers stand to benefit. These include electric vehicle components such as electric drivetrains, batteries, fuel cells, chemicals, and raw materials," she said.

She added that companies that contribute to AV technology by providing sensors, mapping technology, AI, and advanced driver assistance systems, would also benefit. Furthermore, the expansion of the AV market will benefit ride-sharing platforms and network-connected transportation services.