Fubon Financial

European recovery is expected to grow steadily, Japan's transformation ushers in a long-term upward trend, AI agents, semiconductors, and gold are gaining attention

As we enter the second half of 2025, which investment fields should investors pay attention to? Jerry Wu, Senior Vice President of Taipei Fubon Bank, stated during the 'Mid-Year Session of the 2025 Fubon Financial Trends Forum' that investors should shift their attention to the two major markets of Europe and Japan. Additionally, sectors such as AI agents and semiconductors, which continue to lead the technological wave, are worth deeper investment. Furthermore, with increasing geopolitical tensions, gold has become an essential component of asset allocation for investors.

In the first half of 2025, as the Trump administration continues to adjust tariff policies to promote American manufacturing and the global trade order is being reshaped. As the world's largest economy, changes in U.S. policy significantly impact global economic trends. At the same time, rising geopolitical risks have led international forecasting agencies to substantially revise down their growth projections for major economies in 2025. In this context, investors may consider shifting their focus from the U.S. stock market to the two major stock markets of Europe and Japan. Europe is restarting fiscal expansion and developing its defense industry, coupled with a loose monetary policy, which is likely to enhance stock market valuations; Japan, on the other hand, is experiencing a positive cycle due to wage inflation, with the government promoting various policies that have notably increased public investment sentiment, while foreign capital continues to rise.

In terms of industry selection, AI agents are taking the reins of technological trends, steering various industries towards innovation. The AI interaction era is on the verge of arrival, with new business opportunities that are truly limitless. As a crucial factor in global transformation, semiconductors are seeing a heightened demand spurred by the rapid evolution of AI. Companies are relentlessly seeking breakthroughs in computing power, energy efficiency, and high-speed transmission technologies, making investment a necessity. Ultimately, in the context of escalating global political and economic tensions, gold, recognized for its value preservation, aids in stabilizing the volatility of overall asset distribution.

Trend I: The transformation of European structures is experiencing a significant leap in infrastructure and defense

After the European debt crisis and the subsequent pandemic, the overall fiscal stimulus in the European stock markets are evidently lacking. Nonetheless, Germany has formally enacted a constitutional amendment in March that loosens the constraints on national borrowing, symbolizing a change in its fiscal policy from a conservative approach to an expansionary one. In the future, the German federal government will be permitted to borrow in areas such as defense, civil protection, intelligence, and cybersecurity, with a borrowing limit that surpasses 1% of GDP. By 2025, the anticipated borrowing capacity is expected to exceed 44 billion euros. Simultaneously, the German parliament has approved an off-budget fund of 500 billion euros, designated for the nation's infrastructure and climate protection over the next 12 years. Furthermore, the European Union has introduced the "European Rearmament Plan," which is expected to mobilize up to 800 billion euros in military investment through a combination of a 650 billion euro national budget and 150 billion euros in military loans. In 2024, the defense budgets of EU member states will only account for 2% of the total GDP. Goldman Sachs estimates that if the average defense budget of the EU can be increased to between 2.5% and 3%, the annual defense expenditure of the EU will reach between 85 billion and 175 billion euros, significantly boosting the defense and aerospace industries.

Jerry Wu stated that in 2025, European stock markets will be driven by several factors including the ECB's interest rate cuts, undervalued stock markets, the potential conclusion of the Russia-Ukraine war, post-war reconstruction, and Germany's increased fiscal stimulus, leading to a significant influx of capital into the stock market. However, following the market correction triggered by Trump's imposition of reciprocal tariffs, global fund managers continue to overweight European stocks, indicating a sustained confidence in the European stock markets. Historical data shows that over the past 30 years, the average performance of European stock markets in the fourth quarter have been 1.4%, 1.2%, -1%, and 4.8%, with the fourth quarter exhibiting the strongest gains. The outlook for the second half of this year remains positive, and investors should pay attention to deeply discounted consumer, infrastructure, and defense-related stocks, strategically positioning themselves in oversold sectors for long-term investment.

Trend II: Japan's transformation ushers in a long-term upward trend

Japan's overall economic trend exhibits both growth momentum and numerous challenges. Data indicates that Japan has escaped deflation, with the core CPI maintaining over 2% for three consecutive years. The results of this year's spring labor negotiations have reached a 34-year high, indicating that Japan has entered a positive cycle of wage inflation. Additionally, the number of NISA accounts (the tax-exempt investment scheme) in Japan is expected to reach approximately 25.6 million in 2024, reflecting a 21% annual growth, particularly among individuals under 20 years of age. With the expansion of investment limits for NISA in 2024, the proportion of household holdings in securities relative to total savings has significantly increased, effectively enhancing Japanese households' willingness to take on investment risks. Simultaneously, the Japanese government is committed to expanding support for the AI and semiconductor industries, planning to invest 10 trillion yen in these sectors from 2024 to 2030, and calling for public and private sectors to invest 50 trillion yen over the next decade. In 2024, investments in Japan's AI market are projected to grow by 41.6% to 1.76 trillion yen, marking the first time it surpasses the 1 trillion yen threshold. IDC estimates that the AI market size will reach 2.89 trillion yen by 2028, with a CAGR of 30.6%. Notably, the generative AI market is expected to soar by 690% by 2028.

Jerry Wu pointed out that Japanese multinational corporations have a global presence in sectors such as automotive, banking, energy, chemicals, and electronics, holding substantial overseas assets, with some early-held assets having potential for revaluation. Since 2020, Buffett has been purchasing shares in the five major trading companies, and this year he has continued to increase his holdings, while these companies have agreed to relax the 10% shareholding limit. At the same time, corporate governance reforms are proving effective, as Japanese companies continue to enhance shareholder returns and improve their price-to-book ratios. The proportion of companies in the Tokyo Stock Exchange index with a price-to-book ratio below 1 has decreased from 54% in 2022 to 48% this year. Currently, Japanese stocks are still significantly undervalued compared to other major countries, presenting an attractive investment opportunity. It is recommended that investors focus on domestic industries in Japan, such as pharmaceuticals, retail, and banking.

Trend III: Universal AI Agent Takes the Lead in Driving Technological Waves

Recently, AI has been advancing at a remarkable pace, and AI agents are now at the forefront of the technological revolution! These agents function as digital assistants that can "operate autonomously"; they not only "engage in dialogue" but also actively plan, execute, adjust, and report on tasks based on the context, achieving true "delegation" and personalized service. Their application scenarios include 24-hour customer service, precise marketing, personal assistance, and more. Due to the trend of negative population growth globally, enhancing collaboration between humans and AI agents to improve work efficiency is currently the best solution. Therefore, major technology companies are making significant investments in the development of AI agents, with 2025 regarded as a critical year for their entry into the mainstream market.

Market research institutions predict that the market for AI agents will continue to grow, expanding from US$5.1 billion in 2024 to US$47.1 billion by 2030, with a remarkable compound annual growth rate of 44.8%. Furthermore, within the next three years, 82% of companies are expected to adopt AI agents, and over the next decade, each American is anticipated to have several AI agents. The rapid advancement of the 'AI Agent Era' will further propel the commercialization of AI applications, and the sophisticated simulation and search reasoning capabilities of AI agents will significantly increase the demand for reasoning computation. It is projected that by 2026, the demand for AI reasoning computation will account for over 70% of the total computational demand.

Jerry Wu indicated that with the development of AI agents, the interaction among AI systems is set to transform into a multi-agent economy. It is expected that corporate AI agents will evolve in three significant ways: by hiring additional AI agents, developing AI customer service interfaces, and preparing APIs to enable effective communication between the agents of companies and those of customers. These initiatives will create a range of business opportunities, including growth in cloud computing, blockchain technology, fintech, and enterprise artificial intelligence, which will benefit leading companies in the software platform sector.

Trend IV: The essential factor in transforming the world - semiconductors

Since the beginning of 2023, the semiconductor industry has been actively reducing inventory levels. However, in the second half of 2024, the average inventory turnover days experienced a temporary stagnation in their decline, reflecting concerns over an economic slowdown. Fortunately, in the first quarter of 2025, the global semiconductor inventory improved due to preemptive stockpiling and the ongoing rise in AI demand. At the same time, with the advent of DeepSeek, the global focus on AI will shift towards cost-effectiveness. Tech giants will transition from previously concentrating resources on model training to prioritizing model inference, which will require more computational power to carry out longer reasoning processes in the future. Based on past experiences, the development cycle of a technological advancement typically spans 10 to 15 years. Since its emergence in 2023, AI is still in its early stages of development. The immense demand has prompted various organizations to revise their estimates for data centers and server requirements. Market average estimates suggest that the EPS for SOX is expected to increase by 26.9% in 2025 and 24.3% in 2026, which is higher than the S&P 500's growth rates of 11% and 12.2%. Furthermore, 650 groups have updated their projections in March compared to the estimates from December last year, showing that the global AI server market is anticipated to grow at an annual rate of 31%, reaching US$334.5 billion by 2028.

Jerry Wu stated that in order to enhance data computation and transmission speeds, major technology companies are continuously improving semiconductor processes. The integration of optical communication replacing electrical communication through silicon photonics (CPO) technology is currently a primary development direction in the industry (not yet commercialized). Research institutions predict that over the next four years, the scale of CPO will grow significantly at an annual rate of 47%. Currently, the peak growth rate is projected for October 2024. Based on this estimation, the low point for semiconductor sales growth is expected to occur around the second quarter of 2026. Given that stock prices typically lead sales figures by seven months, the second half of this year presents a favorable opportunity for investors to position themselves.

Trend V: In the face of worldwide political and economic instability, gold continues to serve as a steadfast safeguard for wealth

As global political and economic turmoil continues, the geopolitical situation remains tense, leading to a sustained increase in gold prices and a rise in investment and technological demand for gold. Historically, it took about 1,700 days for gold to increase by US$500 per ounce; however, the recent escalation from US$2,500 to $US3,000 per ounce was accomplished in just 210 days! Projections for 2024 indicate a 25% and 7% growth in demand for gold for investment and technology, respectively, reflecting the growth in gold ETF holdings and applications in AI. Moreover, data shows that in the fourth quarter, the demand for gold from central banks has increased by 54% YoY, with global central banks accumulating more than 1,000 tons of gold annually for three consecutive years. As uncertainty arises from Trump's policies, gold, known for its value retention characteristics, has become the preferred investment choice. Concurrently, the market anticipates potential interest rate cuts before the year's end, coupled with stock market volatility and strong hedging demand, which further elevates the price of gold. According to statistics from the World Gold Council, over the long term, a 50 basis point decline in the yield of 10-year U.S. Treasury bonds typically corresponds to a 2.5% increase in the price of gold.

Jerry Wu indicates that gold constitutes an average of 20% of global central bank reserves, with most emerging market central banks holding less than 10%. There is significant potential for increasing gold allocations. Furthermore, newly approved gold allocations by Chinese insurance companies may provide short-term support for gold price during downturns. Additionally, from the second half of 2024 to early 2025, inflows into gold ETFs are expected to reach the longest sustained period since 2020, with quarterly inflows comparable to historical peaks. In the first quarter of 2025, gold ETF holdings are projected to rise by 226.5 tons to 3,445.3 tons, marking a new high since May 2023. Given the current economic situation, gold serves both as a store of value and a hedge. It is recommended that investors evaluate a suitable allocation.