Trends in global markets

We are witnessing extremely challenging times where cries of help, death and destruction are interspersed with financial troubles, inflation and yet progress, lives empowered by new technology, AI, new drugs and healthcare solutions.

The need for dominance (technological or otherwise), power play, regional conflicts and historical conflagrations are making for death, destruction, unstable geo politics, mistrust amongst trading partners, high inflation, energy shocks, human cost and displacement. Will this not impact your investments?

Here is a closer look at some key trends shaping our future.

Conflicts, Geopolitics and Volatility

‘This may be the most dangerous time the world has seen in decades and ongoing war in Ukraine and conflicts in the Middle East may have far reaching impacts on energy and food markets, global trade and geopolitical relationships’, said Jamie Dimon in a recent statement.

Central banks responded to the high inflation with the most aggressive global rate-hike cycle in decades; resulting in tighter credit, higher costs of doing business and forecasts of an impending recession.

Global debt has already hit a record $307 trillion in 2023. Experts predict more volatile business cycles, constraints on supply, shortfalls of demand and labour market shifts leading to economic fluctuations.

A bumpy economic landing seems inevitable as the economy sputters along; 6 out of 10 chief economists expect the global economy to weaken/ slowdown this year, as per the WEF.

As per this PIMCO report, ‘……..with the era of volatility-suppressing policies possibly over, markets are likely in for a period of heightened volatility, with an unusually large array of potential aftershocks.’

We would certainly do well to BUILD IN VOLATILITY into our investments decisions.

There are also reports of a drop in card spending in the US. Credit card spending was seen to be soft in September, across all sectors. ‘I think we are starting to see growing financial strain at the lower end of income levels’, said Citigroup economist Robert Sockin.

US – CHINA relations

The ever evolving US – China dynamic amidst the race for tech dominance continues to be at the cornerstone of geopolitics. This continues impacting the future of many corporations, such as NVIDIA due to the tighter restrictions on exports of hi tech items such as AI powered chips.

China is a larger story in itself. The slowdown and competition in China is beginning to impact the fortune of companies such as LVMH, Starbucks, Nike, Apple, Tesla, Rolex amongst others.

Barrons and The Wall Street Journal have reported these as impacted companies.

‘CASH is far from TRASH’

Last year was painful for fixed income investors in 2022 as they suffered losses on the back of rising interest rates. Higher interest rates have made holding cash more attractive, with many popular fixed-rate accounts paying over 5%.

Some banking stocks such as Bank of America and Goldman Sachs have benefitted from higher NII (net interest income) during this cycle of high interest rates.

Technology, Innovation, new DRUGS

In his recently published 7 page letter, “The Age of AI has Begun”, Bill Gates said that ‘The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet, and the mobile phone. It will change the way people work, learn, travel, get health care, and communicate with each other.’

Of particular interest are breakthroughs in AI, ML, Metaverse and VR (virtual reality), unlocking huge value across the business spectrum…. especially in healthcare, cybersecurity and semiconductors. There is a quiet convergence taking place – providing the grounds for a hyper connected, data driven world.

Recent drug discoveries and treatments in the areas of obesity, diabetes management, cervical cancer are heartening as they cater to huge markets.

Conclusion

‘Markets seem to be pricing the best of all worlds – inflation moderating, policy rates falling, and recessions evaded……. while attractive, the yield provided in ultra-short fixed income may be fickle, and kicking the can down the road on strategic allocations could prove costly for investors’, according to Goldman Sachs.

The key risk factors point to slower growth on the back of higher interest rates, ageing constraints for the workforce, geopolitical fragmentation of supply chains, technology led opportunities and disruptions. Mega forces are creating opportunities and risks across sectors and regions.

Yet, most agree that risks to growth are skewed to the downside and returns across asset classes are likely to be more differentiated.

© Anu Maakan October 2023

A slice of AI to power your SEARCH

The unveiling of ChatGPT has brought generative AI out of the closet.

Social media is abuzz. Most users are delighted or surprised.

ChatGPT has captured the attention of academics, business leaders, users and tech enthusiasts with its ability to provide lengthy, comprehensive responses. It is being used to write/ improve essays, prep for an interview, prepare travel itineraries and to even write code.

This may be the ‘steam engine’ moment for AI, something that changes how fast and productive life can be.

Generative AI for Online SEARCH

Google has been a leader in online search for the last 10+ years. It is now releasing its own AI tool called Bard. They are said to have even declared a ‘code red’ on concerns that the chatbot could replace search engines. With digital ads bringing in more than 80% of Alphabet’s revenue last year, they are right to be concerned.

It also has a challenger in Microsoft and Baidu. Microsoft recently invested $10 billion into ChatGPT and plans to incorporate the tool into a range of Microsoft products, including Bing. As per this blogpost, ‘we’re launching an all new, AI-powered Bing search engine and Edge browser, available to deliver better search, more complete answers, a new chat experience and the ability to generate content.’ Chinese tech giant Baidu is also preparing to launch a competitor.

It’s the ANSWER that matters

For decades, online search has been about finding facts. But getting actual answers requires you hone search skills. ‘While Google has been the colleague who points us to a book in a library that can answer our question, ChatGPT is the colleague who has already read every book in the library and can answer our question…….’, says the Harvard Business Review.

Will this finally put the power in the hands of users? With advances in artificial intelligence, (AI) we’re moving beyond search engines and facts to what Wall Street columnist Christopher Mims calls ‘answer engines’.

Peek into the future

Gartner predicts that by 2025, the market for AI software will reach almost $134.8 billion.

AI is becoming the next defining technology of cloud computing, and a secret sauce for cloud applications. ChatGPT has given us a preview of the power of generative AI. It may change everything we know about knowledge, research, and content creation.

Make no mistake, ChatGPT is a new use case for search. For users who are looking for more than just a list of websites in response to their query, people users who want more details, insights, better understanding and perhaps even inspiration.

Yet, it is early days, and value will be realised over the coming months and years.

In its current form, ChatGPT is not a search engine, because it was trained on a massive dataset with an October 2021 cut-off, and does not have access to real time information. This training gave ChatGPT substantial static knowledge, as well as the ability to understand and produce human language. However, it doesn’t know beyond what it has been trained on. Continuously retraining an LLM (large language model) as the information on the internet evolves is difficult, expensive and time consuming.

The likes of ChatGPT are likely to enhance traditional search engines, but may not yet dethrone Google search. They could power up vertical search in the more immediate future.  Vertical search would focuses on narrow, deep knowledge. That makes it easier to train on highly curated datasets.

A new, more powerful AI-led information era is certainly here, where corporations will need to flex their offerings and create new use cases.

© Anu Maakan February 2023