BofA named the best assets to protect against the AI bubble. One of them outperformed the S&P 500 by half

The best defensive assets amid overheated valuations of AI-related stocks are gold and Chinese equities, Bank of America strategists say. They expect central banks to continue buying precious metals amid economic uncertainty, despite the record rally this year. And the bank recommends securities of Chinese companies due to their faster growth this year than U.S. companies.

"AI rally leaders are not going to give up their positions just yet, but in case of overheating, we recommend gold and Chinese equities as the best defensive assets," wrote BofA strategists led by Michael Hartnett. Their note for investors is quoted by Bloomberg.

Analysts at BofA note that investors are building their portfolios based on expectations of strong economic growth in 2026, hopes for lower interest rates and possible support for markets from President Donald Trump. In this scenario, gold serves as a hedge against the risk of accelerating inflation caused by loose monetary policy and economic growth, Bloomberg writes.

As for Chinese stocks, the MSCI China index rose 33% amid optimism around the region's potential to develop its own AI models. By comparison, the S&P 500 index is up 16% in 2025. However, stocks in China are gradually losing steam: their five-month rally could be interrupted as trade risks and structural problems in the economy come back into focus, the investment bank warns.

Hartnett's team made a successful bet on international stocks after Trump's victory in 2016, choosing Asian and European securities, Bloomberg noted. Then the easing of policies in these regions contributed to the growth of stock indices.

Since the beginning of 2025, gold has risen in price by more than 54%, setting several historical highs. The last peak was recorded on October 20 at $4381.21 per ounce. Since then, however, quotes have fallen by more than 8%. Analysts record outflows from gold funds: according to EPFR, over the past week investors withdrew $7.5 billion after four months of capital inflows, writes Bloomberg. Investors are hoping for a weakening of the trade conflict between the U.S. and China, which increases interest in riskier assets, including stocks, the agency explains.

Investment bank Morgan Stanley believes that the price of gold may rise to $4500 per ounce by mid-2026, reported Reuters. Analysts explain this by high physical demand from exchange-traded funds (ETFs), as well as continued purchases of gold by central banks amid continuing uncertainty in the global economy. Morgan Stanley also expects stabilization of demand from the jewelry industry.

"The rise took gold into overbought territory in terms of the Relative Strength Index (RSI), but the ensuing correction brought the price back to a more sustainable level and helped to 'clear' market positions," Morgan Stanley said in a research note cited by Reuters.

At the same time Morgan Stanley warns that there are still negative factors on the market. Among them is high price volatility, which may force investors to switch to other classes of assets. One cannot rule out the possibility that central banks will decide, on the contrary, to reduce their gold reserves.

AI euphoria has already added $17 trillion to the capitalization of the S&P 500 index since the beginning of April, Bloomberg writes. The growth engine remains chipmaker Nvidia, which on October 29 became the first company in the world with a market value of $5 trillion.

The S&P 500 index is now trading with a price-to-earnings (P/E) multiple of 23, which means that investors are willing to pay $23 for every dollar of future annual earnings of companies in the index. Moreover, the "Magnificent Seven" tech giants account for more than a third of the index's weight, with multiples within this group reaching a P/E of 31. Additional support for the market on Friday was provided by strong quarterly reports from Amazon and Apple, which can compensate for the recent decline caused by the fall of Meta securities amid concerns that multi-billion dollar investments in AI will not bring a quick return.

This article was AI-translated and verified by a human editor