Goldman Sachs: Asian Investors Are Overly Cautious on AI Trades
TREE NEWS reports: Goldman Sachs FICC and equities partner John Flood published a note on September 10 following a week-long tour of Asian institutional clients, concluding that skepticism toward AI-related trades has swung well past what fundamentals justify. The caution stems largely from July’s historic momentum-stock drawdown, which erased more than 20 percentage points of year-to-date gains for some Asian hedge funds in a single month. Despite that hit, Goldman’s prime brokerage data shows Asian hedge funds are still up roughly 21% year to date.
The News: Sentiment Diverges Sharply From Earnings
Flood described being “stunned” by how uniformly wary Asian investors have become. In every client conversation, concerns about geopolitics, rates and inflation surfaced repeatedly, and positioning and sentiment gauges sit at depressed levels. Yet second-quarter earnings told a very different story: S&P 500 earnings per share grew about 30% year over year, with hyperscalers and AI infrastructure beneficiaries posting 54% growth and contributing roughly half of the index’s EPS expansion. Excluding energy, the rest of the index still grew earnings 14%, suggesting broad-based strength.
Positioning Data Points to Light Exposure
Goldman cited a cluster of indicators supporting its contrarian view:
- Individual investor sentiment remains in bearish territory, with Goldman’s sentiment indicator falling into negative territory for the first time since March.
- Nasdaq 100 futures short positions have risen 35% since mid-June, and average short interest across S&P 500 constituents is elevated.
- US fundamental long/short funds show gross and net leverage of 207% and 49.8%, sitting in the 20th and 6th percentiles over the past year and the 59th and 10th percentiles over three years.
- US information technology allocations have fallen sharply from five-year highs hit in June, now in the 43rd and 71st percentiles over the past year.
- Mutual funds trimmed Magnificent 7 holdings in Q2, with Alphabet and Meta seeing the largest reductions, and remain significantly underweight AI exposure relative to index weights.
Options market signals reinforce the picture. Goldman’s Brian Garrett noted that rallies in the S&P 500 show roughly twice the volatility of declines, and that call implied volatility is unusually correlated with spot — behavior inconsistent with a fully invested market. Some investors appear to be buying upside insurance rather than adding exposure outright.
Market Implications
If Goldman’s read is correct, the setup favors upside surprises. Light positioning means less crowded exits if sentiment shifts, and a heavy IPO calendar could act as a catalyst for both institutions and retail to re-engage. Flood also flagged a divergence in views on Chinese open-source AI models: American investors may be underestimating adoption speed, while Asian investors may be overestimating it, with the truth likely landing in between. For equities, that suggests AI infrastructure and hyperscaler names could re-rate higher if earnings momentum holds. Bonds and rates remain the wildcard — persistent inflation and rate uncertainty are the primary reasons investors are hesitant, and any hawkish surprise would undercut the bullish case. Crypto, which trades as a high-beta risk asset alongside tech, would likely follow any renewed risk appetite, while commodities and currencies would take their cues from the same macro concerns dominating client conversations.
Key Takeaways for Investors
- Sentiment and positioning are washed out even as earnings growth remains strong — a classic contrarian setup, though not a guarantee.
- Watch the upcoming IPO pipeline and earnings season as potential catalysts for re-engagement.
- Leverage and tech allocations sit near multi-year lows, leaving room for re-risking if macro fears ease.
- The biggest risk to the thesis is a renewed inflation or rate shock, which remains the top concern among Asian institutions.
