Bank of America’s lead investment strategist, Michael Hartnett, has highlighted gold and Chinese stocks as the best hedges for investors navigating the current artificial-intelligence-driven equity market. Hartnett points to valuations stretched in the U.S. tech sector and growing exposure to AI themes as reasons to diversify with non-traditional assets that may fare better if sentiment turns.
Valuation Alert and Hedge Strategy
Hartnett argues that while U.S. mega-cap tech companies continue to draw money amid AI enthusiasm, the risk of a sharp correction is rising as investor breadth narrows and valuations expand. He notes that gold has historically performed well when speculative equity markets become overheated. Chinese stocks, by contrast, offer undervaluation and regional-specific exposure outside U.S. tech dominance. Importantly, both gold and China equities provide diversification away from the richest parts of the market, making them complementary rather than competing positions.
He emphasises that investors should view hedges not as protective anchors alone but as active parts of a portfolio that can perform in alternative scenariosб such as a tech bubble deflating or global growth stalling.
Portfolio Insights and Market Signals
For investors, Hartnett’s take signals a thematic shift: successful portfolios may require more than owning the hottest tech names. Allocations to gold – driven by safe-haven demand and Chinese equities – backed by regional rebound potential – could help cushion volatility and structural risk. The performance of gold and China stocks may also amplify if U.S. tech falters or AI growth disappoints. Key signals to monitor include inflows into gold-backed funds, ETF flows into Chinese equities, changes in Chinese regulatory policy and any signs that U.S. tech breadth is weakening.
The broader implication is that the AI-fuelled rally may be entering a phase where hedging matters more than chasing excess returns. Investors increasingly need to ask: what happens if the AI story slows, valuations compress or global growth slips? In that light, Hartnett’s message acts as a reminder that owning the trend is rarely enough -preparing for what happens when it changes is equally important.
