AI-fuelled rally keeping global markets resilient despite oil shock, says Ed Yardeni

Synopsis

Global equity markets are defying geopolitical risks and high oil prices, with investors betting on economic resilience fueled by AI-driven earnings growth. South Korea and Taiwan are leading a surge in tech and semiconductor stocks, while the US market also sees broad gains. India, however, faces headwinds from its reliance on imported oil.

Global equity markets are continuing to defy geopolitical tensions, elevated crude oil prices, and political uncertainty in the United States. According to market strategist Ed Yardeni from Yardeni Research investors are increasingly betting that the global economy can withstand higher energy prices, particularly as artificial intelligence-driven earnings growth powers stock markets higher.

In an interview with ET Now, Yardeni said the ongoing rally in global equities has remained remarkably strong despite concerns surrounding the Middle East conflict, volatility in energy markets, and frequent policy commentary from US President Donald Trump.

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“The strength of the global stock market rally has been extraordinary,” Yardeni said. “Apart from a brief selloff in March, markets have largely continued moving higher, especially in the United States and several other regions.”

Why Markets Are Ignoring the Oil Spike

Yardeni argued that the current situation differs sharply from the oil crises of the 1970s. According to him, the global economy today is significantly less dependent on energy than it was decades ago, helping markets absorb the impact of crude prices hovering near the $100-per-barrel mark.

He also pointed out that oil supplies from the Gulf region have not completely dried up despite geopolitical tensions. Supplies continue to move through alternate routes, including Saudi Arabian pipelines. At the same time, the United States has largely allowed Russian oil exports to continue flowing toward major buyers such as China and India, helping stabilize global supply conditions.

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“Oil prices are elevated, but the market believes the global economy can live with crude around $100 a barrel,” he noted.

Strategic petroleum reserves being tapped by several countries have also helped prevent a sharper spike in energy prices, supporting broader market sentiment.

South Korea and Taiwan Lead the AI-Driven Surge

One of the standout stories in global equities has been the sharp rally in South Korean stocks. Yardeni attributed the surge largely to the artificial intelligence boom, which has significantly boosted demand for memory chips and semiconductor infrastructure.

According to him, South Korea and Taiwan have emerged as major beneficiaries because of their critical role in the AI supply chain. Companies involved in advanced memory production and semiconductor manufacturing have seen strong investor interest as demand for AI infrastructure accelerates globally.

He said the US market is also witnessing a broader technology-led rally that extends beyond the so-called “Magnificent Seven” technology giants. Semiconductor companies outside that elite group have also delivered powerful earnings growth.

Yardeni highlighted that first-quarter earnings in the United States have exceeded expectations by a wide margin. Analysts, he said, are rapidly upgrading earnings forecasts for both this year and next year, creating what he described as an “earnings-led melt-up” in global equities.

However, he cautioned that such strong momentum could eventually become excessive if valuations continue rising too quickly.

Foreign Flows Shifting Towards AI Markets

On the question of global fund flows, Yardeni said investors are increasingly directing money toward markets that offer strong exposure to the AI ecosystem. He noted that for over a decade he had maintained an overweight stance on US equities, a strategy that worked well through much of the post-2010 bull market.

But over the last year, leadership has started shifting toward international markets, particularly those tied to the technology and semiconductor boom.

South Korea and Taiwan have emerged as key beneficiaries, while countries such as Brazil and Mexico have also attracted investor interest due to their commodity and energy exposure.

Interestingly, Yardeni also pointed to the resilience of Israel’s stock market because of its strong technology presence despite regional instability.

India Faces Pressure from Elevated Oil Prices

While Yardeni remains constructive on emerging markets overall, he believes India faces a unique challenge because of its dependence on imported crude oil.

He said elevated oil prices are currently acting as a headwind for the Indian economy and limiting the market’s participation in the broader emerging market rally.

“India is an oil importer and oil importers are at a disadvantage as long as the Strait of Hormuz remains closed and crude prices stay around $100 a barrel,” he said.

According to Yardeni, a sustained decline in crude prices would be important for India to fully benefit from the improving global investment environment.

Even so, he maintained that emerging markets, including India, could continue attracting flows if the global economic recovery remains intact and AI-led growth sustains momentum across world markets.

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(You can now subscribe to our ETMarkets WhatsApp channel)

(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

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