USD 400 billion in tech investment: Is it really that much? | Monthly Investment Insights

Key developments:

• Equities start 2026 in rude health, and the MSCI World Index hits a record high as the rally broadens
• Geopolitical tensions pick up as Venezuela's President Maduro is ousted by the US, but the market reaction has been muted
• Government bond yields remain rangebound, supported by constructive inflation data, with little impact from geopolitical events

Transcript

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[Engaging music starts]

Guy Miller, Chief Market Strategist & Economist, Zurich Insurance Group: 0:01

There's a tech story still at play, but it's not going to be a case of all boats being lifted by one rising tide. The selectivity coming from investors should keep this bull market going on for longer. Welcome to Key Points for January. This month we're looking at why geopolitics seems to be taking a back seat, at least in the minds of investors. We turn our attention to what the drivers are for economic growth and financial markets in the current new year. And we look at the financial markets themselves and ask, can this bull market really run in equities for a fourth consecutive year? Now, turning to our first point, we've all read and heard about the events in Venezuela over recent days. Given the dramatic pictures that we've been seeing, it might surprise many of you that actually from a financial market perspective there's been very little impact. If we look out the lightning rod of that kind of geopolitical event, the oil price, you can see the chart that I'm showing you here -t here's really been no discernible move. You might have expected either prices to spike higher if there was going to be a supply shock coming through or disruption, or you could have expected them to fall more sharply if we think that the supply of oil coming from Venezuela is going to increase in the coming weeks, years and months. But the reality is that we've been in a down track for oil for a long time. And what we've realized in geopolitics in recent years is from an investors perspective, at least, they are more concerned about short-term drivers of earnings and growth rather than the geopolitics behind all of that. Now turning to our second point. So what are the drivers for economic growth and financial markets in this coming year? Well, we've spoken in the past about the fact that monetary policy is going to be helping financial markets. Policy rates are going to be coming down by the key central banks, but not as much as we saw last year. One of the key differences in this current year is going to be fiscal policy. We know that in Germany, there's going to be a massive fiscal initiative kicking through in 2026. We're also seeing activity in, of course, Japan and China. But the chart I'm showing you here is looking at the fiscal boosts coming in the United States. This was part of the Big Beautiful Bill. And you can see in this coming year and in next year, actually, as a share of GDP, the deficit is going to be increasing in the US, in other words, there is going be more stimulus coming through on the fiscal side. And that's going to be a key reason why we think economic activity is going to be decent and the financial markets are going to be helped out. But of course there's another reason that's gonna be a major driver and that's going to be around capital investment. If you look at the next chart I'm showing you here, this is looking at the hyper scalers, these big tech companies and how much they're spending. And you can see over recent years it's been picking up, but of course in 2025 there was a step change in that. And that's something that we think is going to pick up even further in 2026. Now, when you look at some of these numbers, 400 billion dollars, it sounds truly massive and it is massive spending coming through by these big hyperscalers. But sometimes it's good to put that in context. What does 400 billion really look like? And if you look the next chart I'm showing you, this is just a kind of a bit of fun to look at how much is being spent in the United States on apparel and shoes. And that is a line that you can see here. Every year in the United States, about 500 billion is being spent on apparel and shoes versus, as you can see, the pick up we're seeing in terms of the global build out in IT. This is not terribly meaningful, but it helps us understand the size of these numbers. And of course, the implication is that spending, although it's big, in the global context suggests to us that there's going to be further to run again in 2026 and likely 2027. Now turning to our third point. We do think 2026 will be the fourth consecutive year of gains for equity markets. If you look at the chart I'm showing you here, you can see that the MSCI World Index has been in a pretty smooth bull market for the last three years. Yes, of course, it was the Liberation Day chaos, but broadly speaking, the market has been driven higher by investor enthusiasm around improving growth and earnings dynamics. And that's something that we think will continue in the current year for the reasons I mentioned. Lower policy rates, more fiscal stimulus and that capital spending that we're likely to see this year and next year. But the important thing is this is not just a case of investors buying anything. They become increasingly discerning. They're picking the companies with the better prospects, the better models, and that can be seen in the next chart where you can see that a lot of these big US tech companies are not all getting up together. Since the summer period, investors have been much more selective. In the case of Google, we see it continuing to do well. But of course, in the case of Oracle that you can see here and Meta, investors have become less enthusiastic about their business prospects in the years ahead, particularly around some of the spending that's coming through. Net-net, we think this is a positive. There's a tech story still at play, but it's not going to be a case of all boats being lifted by one rising tide. The selectivity coming from investors should keep this bull market going on for longer.[Engaging music starts] So remember, as always, you can read the full report on Zurich.com. And we look forward to speaking to you again very soon.[Music ends]