From the studio

Podcast: with Dominic Schnider, Head CIO Global FX & Commodity, and Constantin Bolz, CIO FX Strategist.
վ:۶Ƶ Chief Economist Paul Donovan on the latest tariff deadline announcements and more(12 mins)
վ:The AI Show: CIO's Sundeep Gantori on tech earnings(3 min)
Podcast:Investors Club: The Fed, the US dollar, credit opportunities, and gold(16 mins)

Thought of the day

US President Donald Trump said he would announce import tariffs on semiconductors and pharmaceuticals “within the next week or so” amid his efforts to bring manufacturing back to the US. Shares of chipmakers and pharma companies declined on Tuesday, with sentiment on semis further dented by below-consensus results from AMD and Super Micro Computer after the US market close.

In an interview with CNBC, Trump said imported drugs will initially face a small rate but will jump to 150% and then 250% within 12 to 18 months. He had previously said that tariffs on pharmaceuticals would top out at 200%. No other details about the plan were provided, and there was no indication of the tariff rate the semiconductor industry may face.

Details of these sector tariffs remain to be seen, and we have said that Section 232 levies on national security grounds could prove to be more durable than Trump’s “reciprocal” tariffs. But while they represent a potential headwind for the semis and pharma industries, we do not expect these tariffs to derail our conviction in the opportunities we see in our Artificial intelligence (AI) and Longevity themes.

Cyclical risks faced by the semis industry are likely temporary. Given the complexity of the semiconductor supply chain, details on how the tariffs will be applied are critical to fully assess their impact. We note that most semiconductors are imported into the US as part of a system or hardware like smartphones, PCs, or servers, rather than as standalone chips. We therefore think the potential earnings hit should be manageable at around 3-4 percentage points, while our estimate of earnings growth for global tech this year remains at 15%. The more visible near-term risk for the semiconductor industry, in our view, is the destocking cycle after the strong front-loading in the first half of this year amid tariff uncertainty. A likely deceleration in growth in the tech supply chain is also part of the reason we recently downgraded the chip-heavy Taiwanese equity market to Neutral, from Attractive. Still, we think the destocking risk is cyclical in nature, and recommend a balanced exposure across the AI value chain.

Much of the ongoing policy uncertainty has been reflected in the pharma sector. The pharmaceutical industry faces significant uncertainty not only from the tariff but also from Trump’s latest push for Most Favored Nation (MFN) drug pricing. But we think the MFN requests would face legal, political, and industry resistance, with near-term implementation unlikely. We also expect the tariff impact to be manageable in the near term as pharma companies have shipped inventories in advance. Additionally, we note that the Trump administration may use the threat of higher tariffs as negotiating leverage to achieve MFN concessions. With the pharma sector already trading at a significant discount to historical averages, we think much of the potential negative consequences of these two policy risks is already priced in. Resolution of these two policy overhangs should materially improve sentiment and provide a meaningful valuation lift from current depressed levels, in our view.

Long-term fundamentals in the AI and Longevity themes remain robust. The second-quarter tech earnings results showed that the AI momentum continues to gather pace, with companies raising capex guidance and cloud revenues posting strong growth. We now expect global AI capital spending to hit USD 500bn in 2026, while accelerating AI adoption rate bodes well for monetization in the years to come. On Longevity, the market will continue to transform the global economy as life expectancy rises and populations age. In addition to pharmaceutical companies, we see beneficiaries across the medtech, health care services, consumer, financial, real estate, and industrial sectors.

So, while we continue to expect near-term volatility, long-term investors underallocated to our Transformational Innovation Opportunities can consider using market dips to add exposure to these structural growth stories.