Global Allocation in Practice: Hong Kong, U.S., Korea, and Europe – Beyond Crowded Trades, What Overlooked Opportunities Remain?

The market's most popular stocks aren't necessarily the ones worth buying; markets no one is discussing may still hold opportunities.

We’ve invited our guest—"Financial Bak Kut Teh"Detailed discussion: covering Hong Kong and U.S. stocks, then moving on to markets in Korea, Europe, and Thailand—sharing how to allocate assets amid high valuations, sector rotation, and heightened volatility. The core focus isn’t about guessing the next hot stock, but answering three key questions:Which assets are already too crowded right now? Which markets are still being overlooked? And how can you assess whether your portfolio can withstand the next market correction?

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2. In recent market declines, the first line of defense is excessive leverage

The strongest momentum trades in the first half of the year were primarily concentrated in chips, hardware, and South Korean tech stocks. When market sentiment reversed, these positions—which had seen the largest gains and carried the heaviest leverage—became the most vulnerable to forced liquidation.

With a typical stock decline of 30–40%, investors might still wait for a rebound; however, with 2x leverage, the same drop could wipe out most of the principal.

Therefore, during sharp market downturns, the selling pressure may not necessarily stem from sudden fundamental deterioration in companies, but rather from leveraged positions being forced to exit, causing short-term panic selling. After a round of rapid declines, many overly leveraged positions have already been liquidated, allowing the market to gradually stabilize. However, this does not mean it is safe to re-enter with high leverage.

3. Hong Kong stocks remain cheap, but it’s important to distinguish what you’re buying

I disagree with the notion that 'no one is buying Hong Kong stocks anymore.' The Hong Kong market still sees substantial daily trading volume. The real issue isn’t lack of participation, but rather extreme divergence in performance within the market. In the first half of the year, some large-cap tech stocks underperformed, while banks, financials, and traditional blue chips held up relatively well. In my own Hong Kong equity portfolio, I’m more tilted toward traditional financial names like HSBC, Standard Chartered, and Bank of China (Hong Kong), rather than concentrating my positions in the most popular tech stocks.

He also used his own portfolio allocation as an example—currently about 40% of his assets are invested in Hong Kong stocks, and he continues to accumulate gradually through monthly purchases. The key takeaway here isn’t to blindly copy his holdings, but to understand this:Within the same Hong Kong stock market, financials, tech stocks, and other sectors can move in completely different directions. Judging whether Hong Kong stocks are worth buying shouldn’t rely solely on movements in the Hang Seng Index.

4. US stocks are expensive, but 'expensive' doesn’t mean shorting immediately

His stance on US equities can be summarized as:Continue holding and keep buying, but reduce aggressiveness.

From a valuation perspective, U.S. equities have indeed returned to relatively high levels. However, the phrase 'U.S. stocks are expensive' has been around for many years. Had investors completely avoided the market solely due to high valuations, they might have missed out on significant gains over the past few years.

But the opposite extreme is even more dangerous: believing the market is expensive and then buying puts, shorting the index, or using inverse leveraged products.

Markets can remain at elevated valuations for extended periods. Shorting not only requires correctly predicting direction but also timing. Even if your long-term view is right, you might incur unsustainable losses before the market actually turns downward.

A more reasonable approach includes: ① Avoid going all-in at high levels; ② Reduce margin and leverage; ③ Maintain core long-term holdings; ④ Buy in tranches rather than trying to time the exact top; ⑤ Avoid concentrating positions in the most popular, highest-valued stocks. Although I personally maintain an allocation close to 100% in equities, I emphasize that a 100% stock allocation is already aggressive; adding significant leverage on top of that materially increases risk.

5. The biggest contradiction in AI investing: Tech giants and chip stocks cannot both benefit indefinitely at the same time.

In the first half of the year, a popular narrative emerged: large tech companies are heavily investing in AI, purchasing chips, and building data centers, yet may not generate sufficient AI-related revenue in the near term. Meanwhile, chip and hardware providers—like the sellers of picks and shovels during a gold rush—are the ones profiting first. This story may hold true in the short run, but it contains a long-term contradiction. Big tech companies cannot keep spending massive amounts on capital expenditures indefinitely without eventually earning returns. In the end, only two outcomes are possible:

Scenario 1: AI achieves successful commercialization. Large tech companies can generate revenue from AI services, prompting the market to revise upward its earnings expectations for them.

Scenario Two: AI fails to generate sufficient returns. Major tech companies are cutting back on AI-related capital expenditures, impacting demand for chips, servers, and related hardware. At this stage, I prefer allocating to large-cap tech companies with strong cash flows rather than continuing to chase the momentum in chip stocks, which have already seen substantial gains.

6. U.S. small-cap stocks—rarely discussed—are quietly outperforming

Social media discussions typically center around mega-cap tech, AI, and semiconductor stocks. However, it’s important to note that market rotation is already underway, and U.S. small-cap stocks are beginning to show improved performance. The main challenge with small caps is the sheer number of companies, making it difficult for retail investors to research each one thoroughly. Rather than forcing a pick in an unfamiliar company, it’s better to achieve diversified exposure through ETFs that track small-cap indices—examples include VB and IWM. These ETFs provide broad coverage across numerous small companies, mitigating the risk of sudden fundamental deterioration in any single stock. While such allocations may not be as buzzworthy as hot stocks, true investing should focus on returns—not on having something to talk about on social media.

7. Korean equities: Cheap valuations, but don’t overlook volatility and currency risk

Following a sharp decline, the Korean market’s valuation has retreated to relatively low levels. One of the most meaningful ways to assess whether a market is cheap is by comparing its current valuation to its own historical levels—not by directly comparing P/E ratios across Korea, Hong Kong, and the U.S. Investors can gain exposure via Korea-focused ETFs listed in the U.S., but should keep in mind:

Quoted in U.S. dollars does not eliminate exposure to Korean won (KRW) exchange rate risk.The ETF still holds Korean stocks; when the won depreciates, the ETF’s dollar-denominated price is similarly affected. Moreover, Korean semiconductor stocks are already highly volatile—adding double-leveraged products on top could lead to drawdowns far exceeding investor expectations. I hold Korean market ETFs, but I do not recommend layering leverage onto already high-volatility assets.

8. Weak European economic data doesn’t mean European stocks can’t rise

The European market is another direction that is often overlooked. Some investors, upon hearing that Europe’s economic growth is slow, immediately assume that European stocks lack investment value. However, economic performance and stock market trends are not always perfectly aligned.

Many European markets and bank stocks remain in a strong uptrend, with some indices continuing to reach new highs. The French market has lagged relatively due to weaker performance from luxury goods companies, but markets in Germany, the UK, the Netherlands, Italy, and parts of Eastern Europe have performed quite well.

For investors unfamiliar with individual European companies, using a pan-European ETF is simpler than attempting to pick stocks.Investors often believe they are familiar with U.S. stocks merely because they are discussed more frequently; unfamiliarity does not imply lack of value, just as familiarity does not guarantee lower risk. The Thai stock market previously performed poorly—it has yet to recover its all-time high since the 1997 Asian financial crisis. However, it has shown a clear rebound this year, rising significantly. If you're bullish on this rally, consider buying an ETF that includes Thai equities to participate.

9. What truly navigates through bull and bear markets isn’t prediction—it’s asset allocation.

First, don’t concentrate all your assets in a single popular trade.No matter how strong semiconductor or AI stocks may be, that doesn’t mean you should ignore Hong Kong, Korean, European, or small-cap stocks.

Second, use ETFs wisely to gain exposure to markets you're unfamiliar with.You don’t need to know every company in the index—diversification allows you to participate in the overall market trend.

Third, manage your position size when valuations are high, rather than completely exiting or shorting aggressively.When the market is expensive, buy less—but there’s no need to take heavy contrarian positions just to prove you’re right.

Fourth, prioritize controlling leverage before chasing returns.Many investors aren’t wrong about long-term direction—they’re forced out by short-term volatility. You don’t have to always buy the hottest stocks. The most practical way to navigate bull and bear markets is to diversify across markets, maintain cash flow, and control leverage.

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