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The US market is rebalancing, notably in favor of small-cap stocks, as it begins to penalize the heavy AI investments by tech giants whose profitability is uncertain.

The sharp drop in the software segment is deemed disproportionate. The market is underestimating the diversity of companies in the sector and ignoring the Jevons paradox, according to which lower costs related to AI will stimulate software demand.

In this context, we are increasing our exposure to emerging market and Japanese equities. In fixed income, we favour financial bonds, emerging market debt, and corporate hybrids, focusing on short and intermediate maturities.

Since Donald Trump came to power, geopolitical tensions have escalated, calling into question alliances that were once considered set in stone. This was expressed openly by several leaders at the World Economic Forum in Davos at the end of January. Canadian Prime Minister Mark Carney gave a speech described as historic, calling for the formation of an “alliance of middle powers” capable of exerting influence between rival blocs. Emmanuel Macron, for his part, denounced “a world now governed by the law of the strongest” and stressed the urgent need for far-reaching reform of the European Union so that it can emerge as an autonomous strategic power. These statements, delivered in a location emblematic of globalization, highlighted the growing gap between yesterday’s international order and the one now taking shape.

This double distinction honours our leadership in sustainable investing.

One Year On, Time for a first assessment

•  Concerns over massive investment needs in AI mounted over the week and resulted in steep falls for US tech giants.

•  Kevin Warsh's appointment as Fed chairman weighed on sentiment because of his calls to structurally shrink the Fed’s balance sheet.

•  In Europe, Christine Lagarde continues to express confidence in the current monetary stance despite below-target inflation, while several ECB members warn of the disinflationary and restrictive impact of the euro's appreciation on financial conditions.

Historically, the roles were clearly defined: semiconductors were associated with cyclicality and close sensitivity to the macroeconomic cycle, while software was driven by secular, structural growth.
Today, we are witnessing a reversal of roles. The software industry has matured, and the laws of gravity and economics are beginning to apply, especially as software now represents a significant share of corporate budgets. At the same time, the semiconductor world has temporarily detached itself from economic reality, buoyed by a super cycle that combines technological disruption with excessive ambitions, reinforced by a textbook case of the prisoner’s dilemma .

•    After reaching a compromise agreement with the EU on Greenland, Washington is now threatening to increase tariffs for Canada by 100% as punishment for seeking closer ties with China.
•    The Fed left its rates unchanged as expected even if two FOMC members voted for another cut.
•    In the eurozone, PMIs are back in expansionary territory and lending is increasing, suggesting that a recovery may be taking shape.

Edmond de Rothschild Real Estate Investment Management (REIM) has acquired a hotel in Marlow for £5.6m, England on behalf of a diversified pan-European strategy, reflecting an initial yield of approximately 7.25% The transaction marks the second deal completed on behalf of this particular strategy in the UK, bringing the total value of investments to £10 million.

Since the end of the Cold War, nuclear deterrence has held a special place in European strategic debate. A legacy of the bipolar era, it is often seen as the ultimate insurance policy, guaranteeing that no major aggression could be attempted against a state possessing nuclear weapons. From this belief flows an implicit but structuring idea: if the existential risk is deterred, conventional defence efforts can be reduced without serious consequence. Thirty years after the fall of the Soviet bloc, this conviction deserves to be seriously reexamined.

The world order, whether economic, geopolitical, technological, or societal, is changing at a dizzying pace. Paradoxically, the constants of human nature manifest themselves with unwavering regularity.

•   After tensions escalated over Greenland, the tone eased following Donald Trump’s speech in Davos, in which he announced the suspension of planned tariff rises, the launch of talks with NATO and a tripartite meeting on Ukraine.

•   In Europe, France’s government opted for the 49.3 guillotine measure to get its draft budget for 2026 approved. The budget assumes the deficit this year will be around 5%, a less ambitious target than originally planned.

•   Amid rising geopolitical fragmentation, Beijing is trying to appear as a stable partner and has been reinforcing its diplomatic and trade ties, especially with Canada and Europe.

The previous quarter brought us the positive message of “cheaper, baby, cheaper!” in the context of COP 30, with renewable energies, particularly solar energy, becoming increasingly competitive with fossil fuels over the past 10 years, even without public subsidies. This dynamic is a key driver for the ongoing energy and environmental transition, with China providing a particularly illuminating example. It will be important to carefully read the environment/climate section of China's next five-year plan, which will be announced in March.