‘When you invest in Europe you are diversifying away from the risk in tech': AI bubble fears have advisors looking abroad. Should you, too?

With only a handful of stocks propping up record market highs, pundits like Michael Burry are warning that the end of this hollow bull run is near, while the Bank of America has even provided a roadmap for how to survive a post-bubble environment.

To protect yourself before that point, diversification is prudent across sectors, indexes and even borders.

Europe equity markets: a safer bet?

To avoid the fallout from a potential bubble burst, those with low risk tolerance have likely already pulled out of any ETFs or mutual funds with AI exposure.

Opting for equal-weight ETFs instead of a market-cap-weighted index fund can help lessen risk, as can investing in non-tech sectors like healthcare, utilities, materials or industrials. While diversifying across asset classes, investors may want to lean more heavily into REITs, particularly non-office REITs, bonds, especially government bonds, precious metals or physical real estate if they’re trying to shield from AI risk.

Moving away from tech-focused indexes such as the S&P 500 and Nasdaq could also help investors feel more at ease in the face of AI speculation. For some, that may mean looking to the NYSE. For others, it could mean considering “old world” international markets, such as Europe.

As Raphael Thuin, France’s Tikehau Capital head, told Bloomberg,

“When you invest in Europe, you are diversifying away from the risk in tech,” As Raphael Thuin, France’s Tikehau Capital head, told Bloomberg. “The investment case for the ‘buy Europe’ trade is back.” He added that Tikehau has recently doubled down on its European exposure.

Earlier this month, strategists at Goldman Sachs, Barclays, HSBC Holdings and others also issued improved forecasts for the Stoxx Europe 600 Index, boosted by factors such as the US-Iran peace talks and high earnings expectations. Goldman Sachs has emphasized the European market’s comparatively low valuations, decent returns and broader base.