The "anchor of asset pricing" approaches the 5% warning line! Aviva warns stock investors: diversify holdings, China’s ultra-large enterprises become safe havens.

According to the Jinse Finance APP, Richard Saldanha, global equity fund manager at Aviva Investors, stated that if the U.S. 10-year Treasury yield rises to 5%, it should prompt equity investors to diversify their overly concentrated holdings.

Despite rising yields, the stock market has still achieved double-digit returns this year, but he warned that once rates reach this threshold, the equity market could enter a “pain zone.”

Saldanha said in an interview, “There’s no doubt that rates are absolutely critical. I think, as you start to see the 10-year Treasury yield approaching 5%, it will begin to become a bigger pressure point.”

After a week of turbulent bond market activity, as of Monday morning, the U.S. 10-year Treasury yield—often called the global ‘anchor for asset pricing’—stood at around 4.7%. Last week, the U.S. Treasury unexpectedly announced plans to purchase more debt. While this was presented as an initiative to boost liquidity for certain older U.S. bonds, it was widely regarded as an effort to reduce yields.

Saldanha proposed a multi-layered approach to diversification. He pointed out that funding for data center construction depends largely on operating cash flow, but in periods of rising yields, if companies increasingly turn to debt markets, these projects may face pressure. This would further encourage investors to move away from overly concentrated artificial intelligence (AI) trades.

As for which alternatives to consider, Saldanha first highlighted the technology sector itself. He singled out the semiconductor group, but also cautioned that this sector contains significant momentum as well as supply and demand dynamics that must be managed carefully.

Chinese hyperscale cloud service providers

He said it is crucial to broaden the outlook beyond the U.S., and specifically noted that Chinese hyperscale cloud service providers have demonstrated performance different from their Western counterparts. He mentioned that when panic shrouded semiconductors in June and July, Chinese companies performed more steadily. “Even within the technology sector, you can find ways to achieve diversification.”

Beyond technology stocks, Saldanha also pointed to healthcare and consumer staples as additional diversification destinations. Within Europe, he used Unilever as an example to illustrate that such companies can provide a certain refuge. He admitted the European healthcare sector has struggled and has ground to recover, but said the sector remains highly attractive, especially considering mergers and acquisitions (M&A) activity—which he named as another reason to look at the region.

He suggested a global diversification strategy, noting that Japan is a bright spot outside the U.S., given a significant boost in buyback activity and the early signs of M&A. He stated that although investors should keep a close eye on bond market volatility, capital expenditure willingness remains strong worldwide.

The U.S. Treasury’s move to bolster liquidity for long-dated bonds has temporarily eased last week’s sell-off that pushed long-term yields to multi-year highs. However, given high oil prices, inflation risks, and the upcoming Jackson Hole global central bank summit this week, market sentiment may still face tests.