The war premium is receding, and the "pre-war script" is restarting! Wall Street sounds the horn for a market counterattack, with the "AI computing power team" leading the charge.

Some top hedge fund managers from Wall Street have expressed that a diversified investment portfolio composed of themes such as AI computing power, short-term US Treasury bonds, Asian currencies hit hard by exchange rate depreciation, and even instant noodle stocks that have suffered since the Iran war at the end of February, appears to be one of the early beneficiaries of the peace agreement between the United States and Iran. In other words, as the risk premium of the Iran war recedes, hedge funds are unanimously restarting towards those extremely popular trading themes dominated by short-term US Treasury bonds, Asian currencies, and the AI computing power industry chain that were prevalent before the war. The so-called "pre-war trading script" refers to the logic of the market trading before the outbreak of the Iran war at the end of February - low oil price pressure, controllable inflation expectations, no need for hawkish stance from the Federal Reserve, weak market demand for safe haven around the US dollar, continued preference for risk around the stock market and cryptocurrency, and leading the global stock market in technology growth stocks dominated by the AI computing power industry chain. The AI computing power industry chain led by companies such as NVIDIA, AMD, ARM, SK Hynix, and Micron is undoubtedly the strongest investment theme of the pre-war trading script. Within the stock market, stocks directly related to AI computing power infrastructure - the "AI computing super team" led by NVIDIA, SK Hynix, and AMD - are often the most sensitive ones and the first to rise in the rebound logic of the overall market and technology stocks; the core logic behind their forefront counterattack can be described as extremely "hardcore": directly tied to the record-breaking trillion-dollar AI capital expenditure of the tech giants, rather than just telling a story. The next focus of the pre-war trading script is anchored in short-term US Treasury bonds, the Japanese Yen, Southeast Asian stocks, Asian consumption stocks, US consumer stocks, and some cryptocurrency investment projects that can quickly transform into AI data centers. As the US and Iran temporarily reached a ceasefire memorandum, traders in the stock market have shown increasingly bullish sentiment towards the future market conditions for the AI computing power industry chain. As risk appetite returns strongly, popular technology stocks globally related to AI in the stock market surged on Monday. The majority owner of ARM Holdings Plc, SoftBank Group Corp., saw its stock price soar by over 10% in the Japanese stock market on Monday. Storage chip giant Samsung Electronics and SK Hynix, leading the KOSPI super-weighted stock index in Korea, both rose by over 6%. In the pre-market trading on Monday, the AI computing power industry chain collectively surged, with Micron Technology rising by over 7%, AMD rising by almost 5%, Intel rising by nearly 4%, ARM rising by nearly 4%, ASML rising by nearly 3%, and SpaceX, which debuted in the US stock market on Friday, rising by over 6% before the opening bell. As the war premium fades, fast-money forces restart the "pre-war trading script" With high-leverage hedge fund institutions and other "fast-money investors" revisiting their pre-war trading scripts, Grey Value Management, based in Florida, sees value in short-term US government bonds. Reed Capital Partners, based in Singapore, also shares the same view and has started actively buying the Japanese Yen, which has been weak since the beginning of this year. Vantage Point Asset Management states that battered stocks in the Southeast Asia region may outperform the MSCI global stock market benchmark. Thomas Hayes, chairman of the New York hedge fund Great Hill Capital, stated that the firm is looking for significant opportunities to buy US consumer stocks, mainly because consumer confidence is showing significant signs of recovery. "With inflation expectations substantially declining after the agreement, this trade is like going 'back to the future,' back to the effective trading themes in January or February before the war," Hayes said. The hedge fund manages assets over $1 billion. The peace agreement between the United States and Iran, which is set to be signed on Friday, is expected to significantly alleviate the major macroeconomic pressures on the global financial markets. The months-long geopolitical conflict has triggered the largest disruption in oil supply in history, causing concerns about rising inflation worldwide. Crude oil futures prices plunged significantly on Monday, driving stocks and bonds higher; at the same time, with a significant decrease in demand for global safe-haven currency assets, the US dollar depreciated, while Asian currencies such as the won and yen, which had suffered significant declines in recent months, rebounded significantly. On Monday, yields across various terms of US Treasury bonds rose across the board, mainly because traders significantly reduced their aggressive expectations of interest rate hikes by the Federal Reserve due to the drop in oil prices. For Chauwei Yak, CEO of Singapore-based GAO Capital Pte, the winners of the so-called "pre-war trading script" are likely to be concentrated in Asian companies. Given that the major economies in the region are oil-importing countries, Asian stocks were hit hard by the ongoing war between the United States and Iran. Stock indices in India and Indonesia are among the worst performing global markets this year, and the currencies of these two countries have fallen to record lows. "If the war is accidentally prolonged into the summer, we can reconsider some companies that are affected by oil prices, such as companies in the instant noodle manufacturing industry that rely on palm oil," Yak said. Although the MSCI Asia Pacific stock index has risen by over 7% since the start of the Middle East geopolitical conflict at the end of February, technology is the only sector in the benchmark index that has seen an increase, while the other 10 sector groups have declined. In the technology sector of the MSCI Asia Pacific index, stocks related to AI computing power infrastructure dominate, including many companies involved in core chip manufacturing such as TSMC in Asia, as well as major AI computing infrastructure manufacturers such as Foxconn, SK Hynix, and Samsung. Therefore, according to Wall Street analysts, the future of the AI computing infrastructure industry chain in Asia will likely be the biggest winner of the "AI disrupting everything" trend. The strongest theme in the current AI investment theme is undoubtedly the AI computing power infrastructure manufacturing/outsourcing sector with "limited supply and high technological barriers" - advanced process outsourcing, advanced packaging, HBM/high-end server storage, key power, liquid cooling and heat dissipation equipment, as they will transfer the unit economics of AI training/inference systems to "computing power and energy consumption per token," and these sectors are mainly concentrated in Asia. Ecaterina Bigos from the asset management arm of BNP Paribas in France stated that "investment themes with structural support" mainly include beneficiaries of the AI computing power infrastructure construction and the trend of renewable energy transformation. BNP Paribas Asset Management manages assets over 1.6 trillion euros (1.86 trillion US dollars). Bigos is the Chief Investment Officer of the institution, responsible for advising on the long-short strategies of core investments in Asia excluding Japan. Nick Ferres from Vantage is also one of the strategists who believe that there are significant investment opportunities in the Southeast Asian stocks that have been heavily sold off during the Iran conflict. "The markets that have been lagging behind and have long been 'unloved' - such as Southeast Asia - may present significant opportunities after the US-Iran peace agreement is signed and implemented, although investors may still focus on dominant hot investment themes in the long run, namely AI and AI enablers," the Chief Investment Officer Ferres said. Cryptocurrencies also saw a significant increase, with Bitcoin trading prices rising to near two-week highs, after dropping to the lowest levels since Donald Trump won the 2024 US presidential election. However, cryptocurrency traders remain cautious as they await clearer signs to confirm that the geopolitical conflict that began at the end of February has indeed ended. Even after the rebound, Bitcoin is still down by about 48% from its record high in October last year. "Over the weekend, we used a portion of our cash reserves to buy cryptocurrencies, mainly AI-related projects in the cryptocurrency market," said Richard Galvin, Chairman of the cryptocurrency investment company DACM. "But we still maintain a cautious stance, as Iran and the US have not yet signed the final peace agreement." At the same time, some hedge funds have expressed that the outlook for the currency and bond markets has become more nuanced. Matthew Haupt, from Wilson Asset Management, which manages assets over 6 billion Australian dollars (4.3 billion US dollars), is one of the senior investment strategists buying global bond assets. "Being long on bonds, especially short-term US Treasury bonds, makes a lot of sense," said the hedge fund manager based in Sydney. "Federal Reserve and other major central banks can now be less hawkish." Steven Grey from Palm Beach Gardens stated that he is "cautiously optimistic" about the latest progress in US-Iran peace negotiations, and short-term US Treasury bonds appear to be undervalued. On Monday, the yield curve for US Treasury bonds across various terms rose, with the yield on the US two-year bond falling by 6 basis points to 4.02%, and the yield on the US ten-year bond, which serves as the global risk-free return pricing benchmark, dropping by 5 basis points to 4.43%. "With the yield on the 10-year US Treasury bond only about 40 basis points higher than that of the two-year bond, we see no reason to further extend the term structure in asset allocation strategies - or to further downgrade credit quality - just to chase higher yields," said the Chief Investment Officer of Grey Value Management. On the other hand, as geopolitical risks gradually ease, the demand for safe-haven and global reserve currency assets is weakening, causing the US dollar to lose attractiveness to some hedge funds. The Bloomberg Dollar Index dropped by 0.3% on Monday, with riskier emerging market currencies being among the currencies with the largest gains relative to the US dollar. The Japanese Yen has gained some positive sentiment for a bullish outlook again; previously, due to Japan's heavy dependence on imported energy systems, the Yen had faced severe pressure, leading the Japanese Ministry of Finance to intervene multiple times in the foreign exchange market at the end of April and early May. "We are buying the Yen, both as a bet against the overvaluation of the US dollar and as a bet on the structurally bullish outlook for the Japanese currency," said Gerald Gan, Chief Investment Officer of Reed Capital. The company manages assets worth 600 million US dollars. The AI computing power industry chain and undervalued Asian stock assets are entering an important window for repair As the risk of the Iran war recedes, global hedge fund institutions are beginning to embrace the "pre-war trading script" once again. However, this is not a return of indiscriminate risk appetite but a cross-asset reconfiguration strategy revolving around leaders in the AI computing power industry chain, falling oil prices, cooling inflation expectations, less hawkish pressures from central banks, and the dissipation of the US dollar's risk premium. After the United States and Iran reached a preliminary agreement to end the war and reopen the Strait of Hormuz, the international oil price benchmark - Brent crude futures prices plummeted by over 5%, and Asian stock markets and pre-market US tech stocks soared. Although the agreement still needs subsequent signatures and negotiations on nuclear issues, it has been enough to prompt markets to cut off the tail risks of energy impacts. As Great Hill Capital says, "returning to the trading themes of January or February before the war": in addition to the AI computing power industry chain, short-term bonds, non-US currencies, Asia's oil-sensitive assets, US consumer stocks, and some cryptocurrency projects, all are recovering pricing from the impact of the wrong killings caused by the Iran war. While the AI computing power industry chain remains the main global stock market investment theme, the Asian markets and consumption chains suppressed by oil prices, exchange rates, and input-type inflation begin to show significant repair space. For example, Indian, Indonesian, Japanese, Southeast Asian consumption stocks, aviation tourism, automotive sectors, and other energy-sensitive sectors are theoretically benefiting from falling oil prices and declining import costs. Furthermore, the European markets have given similar positive validations to the Asian markets in the "pre-war trading script". After the preliminary peace agreement between the US and Iran, the benchmark index of the European stock market - the STOXX 600 index - immediately reached a record high early on Monday morning, with the travel and leisure sector hitting new highs, airline stocks surging, and energy stocks weakening with falling oil prices. Therefore, Vantage's statement that "under-loved Southeast Asian markets may present opportunities" is not just a simple bottom-fishing strategy but a bet on Asian stock assets that have been collectively suppressed by input-type inflation, weak exchange rates, and capital outflows during the war, beginning to see a dual recovery in valuation and profit expectations. As Wall Street institutional investors and global retail investors start retreating from the noise of war, the AI computing power industry chain is undoubtedly standing on the "super rebound super trend". This is why on Monday, stocks related to AI computing power infrastructure construction in the South Korean and Chinese A-share markets surged together and led the benchmark indices to rebound significantly. ASML's latest forecasts have also greatly strengthened the long-term bullish logic of the global AI computing power industry chain, predicting that global semiconductor market could reach an astonishing $1.5 trillion by 2030, compared to a market size of about $800 billion by 2025. According to the latest mainstream views on Wall Street, although there has been a significant pullback in the stock prices of the global AI computing power industry chain led by companies like ARM, Micron, SK Hynix, and Samsung, there is no pessimistic consensus that the "AI super bull market is ending" in the Wall Street. The pullback is seen as a healthy retracement trend in the crowded long positions and valuation digestion in the AI bull market and more and more large investment institutions are raising their benchmark stock index targets, with reasons almost all related to the wave of AI capital expenditure, the hot process of AI infrastructure construction, and the profit expansion driven by AI. In terms of global capital flows, it currently resembles the second phase of the AI super bull market. The first phase was dominated by large-scale training clusters driven by AI GPUs and ASICs; the second phase began to expand towards the power chain of data centers, HBM/DRAM/NAND, advanced packaging, liquid cooling and heat dissipation, data center CPUs, optical communication/optical interconnection in data centers, high-performance Ethernet network infrastructure/data center DCI high-speed interconnection, as well as PC, wearable consumer electronics, humanoid Siasun Robot & Automation, autonomous driving and future TeraFab-level super chip fabs, and even the so-called "new AI center" represented by SpaceX, spreading comprehensively. According to Bank of America's analyst team on Wall Street, AI computing power infrastructure is entering a more durable and broader capital expenditure cycle. Almost simultaneously, a research report released by Morgan Stanley, another Wall Street financial giant, shows that the AI computing power arms race is entering a systemic expansion stage, and the demand for AI infrastructure is showing a rare "inelastic" trend - that is, regardless of cost curves, tech giants continue to ramp up the construction of AI data centers, and this "inelastic demand" will continue to strengthen the resilience of the US economy and overall profit growth of the S&P 500 index. It is predicted that by 2028, close to $3 trillion in AI-related infrastructure investment will flow through the global economy, with over 80% of the expenditure still ahead. In the view of Morgan Stanley, historically, whether it's the supercycle of cloud computing, smartphone cycles, or IT internet cycles, leading industry trends have often been accompanied by 20%-40% stage adjustments; as long as the expansion and growth of the full stack AI computing power infrastructure layers such as AI GPU/AI ASIC, data center high-performance CPUs, DRAM/NAND/HBM storage, high-performance network infrastructure, AI PCB, liquid cooling systems, data center optical interconnection systems, ABF substrates/glass substrates, and extensive wafer foundry continues to accelerate on a large scale, such retracements are closer to digestion of crowded positions and valuations in an AI bull market, rather than the starting point of a bear market.