Dear Clients,
With the start of another new year, we would like to provide you with our annual Portfolio Update. Our investment performance was very strong again in 2025 and while we are pleased with our results over the short and long term, we remain diligent in assessing the fundamentals, valuations, and risks inherent in our holdings and overall portfolios.
With this in mind, we would like to share our views on the current market backdrop and address questions pertaining to the likelihood of continued strong performance of notable technology stocks in your portfolios.
Executive Summary
- Market conditions have had a dampening effect on economic growth in recent years but are now showing moderate improvement. These conditions have not been conducive for the formation of market bubbles.
- The modern corporate leaders we invest in have augmented their positions of dominance and resilience by being at the forefront of transformative technologies. The strength of their stock performance has been supported by earnings growth while their valuations remain reasonable.
- Our investment success is helped by the avoidance of businesses that are vulnerable to disruption and exposed to structurally weak parts of the economy.
- We maintain a positive outlook on portfolio performance in 2026.
Macroeconomic and Liquidity Conditions
Following the pandemic-related dislocations that resulted in heightened inflation and interest rates in 2022, economic indicators now show that inflation has fully normalized in the developed world. This has allowed the US Federal Reserve and many other central banks to steadily lower short-term interest rates and, in the case of the US, to transition away from quantitative tightening to quantitative easing. In simple terms, until recently, borrowing was expensive and thus contractionary for economic activity. Such periods of tight money supply are not supportive of market exuberance. Now, borrowing costs are steadily receding and this is incrementally positive for economic growth.
The Right Side of Change
As discussed in past notes, we pay very careful attention to seismic shifts in business and consumer behaviour resulting from technological and societal developments that are profoundly impactful on a mass scale. The companies that are on the right side of change stand to benefit greatly at the expense of those that are on the wrong side of change. In growing businesses where leadership is concentrated among a few players with tight customer relationships, strong moats, and scalable platforms, profit generation can be incredibly powerful.
The strong intrinsic profitability of long-standing technology leaders like Microsoft, Amazon, Alphabet, and Meta reflects their dominance in the technology stack and in utility-like businesses such as cloud services, as well as disruptive industries such as digital advertising. Instead of being limited by “the law of large numbers”, they benefit from flywheels and strong customer retention and can even accelerate profit growth from a high base on account of operational leverage and productivity gains.
AI Implications
With the emergence of generative artificial intelligence (GenAI) as a transformative new form of artificial intelligence (AI) technology in recent years, companies are competing to play a leading role in supporting and harnessing GenAI to create breakthroughs in productivity across a broad range of sectors. At this relatively early stage of development, it is understandable that significant investments are required to build out the infrastructure supporting GenAI. Amazon, Meta, Alphabet, and other technology leaders are familiar with the concept of spending aggressively in breakthrough technologies to attract users and grow engagement on a mass scale before seeking monetization. Having witnessed this playbook for developing lasting business moats and generating incredible financial success over time, venture capital firms and deep-pocketed technology leaders themselves are willing to invest heavily in emergent GenAI leaders such as OpenAI, and willing to accept short-term losses in exchange for the potential of outsized longer-term gains.
GenAI and the large language models (LLMs) supporting GenAI are dynamic and evolving technologies, thus requiring continued investments. In general, we see AI as an enabling technology providing the tools for many new forms of innovations and applications. On a global basis, government and corporations are keen to incorporate various forms of AI into their systems and services. Consumer adoption has followed and still has significant room for further growth. As such, we expect the impact on spending, especially in critical areas of technology such as semiconductors, to span a long horizon.
Profit-Led Growth
We began building ownership positions in technology platform leaders in the middle of the past decade and, over the years, have carefully monitored their fundamentals and valuations in the face of strong overall stock performance. The analysis above reflects our assessment that the fundamental drivers of their solid earnings growth have remained firmly in place despite temporary variations in spending and investments.
In short, the strong multi-year share price performance of companies such as Alphabet, Microsoft, Amazon, Meta, Nvidia, and other corporate leaders that we favour has largely been driven by earnings growth. Where valuations have expanded, they remain justifiable based on the quality of their businesses.
Beyond the technology and communications services segments of your portfolios, we have identified important themes driving similarly powerful value creation in select companies in the financial, consumer and industrial sectors. We remain positive on all our current holdings but will not resist making changes as needed.
In Closing
We would like to wish you and your loved ones all the very best for 2026. If there is anything you wish to discuss with us, please reach out to any member of our team.
Warm regards.
Woon Ai on behalf of Woon Ai Tsang Wealth Management Group