One of the best-known psychology experiments shows that anyone asked to count how many times the players in two teams pass the ball in a video usually overlooks the gorilla walking right through the scene. People tend to focus so much on the ball that they barely notice anything else. Financial markets now seem to be carrying out their own version of this experiment. Artificial intelligence, or AI for short, has taken on the role of the ball.
The underlying fascination with it is justified. AI is already changing how we work, produce and communicate. It has the potential to create new business models and lay the foundations for long-term economic growth, and the markets have picked up on this. Last month, the euphoria once again led to huge price gains, particularly among AI infrastructure providers – from chip manufacturers to cloud providers. These companies boosted otherwise stagnant market performance, particularly in Japan, Taiwan and South Korea, but also in the USA. Our customer portfolios were also able to participate in this development.
It’s still worth taking a cool-headed look. The valuations of many tech companies were already very high, even before the recent price rises, and they reflect earnings expectations in the future, which usually only appear realistic if individual companies hold a dominant market position. However, competition is intense, both among chip and infrastructure manufacturers and AI application developers. It remains to be seen which companies, technologies and solutions will prevail in the long term. Every technological shift has always produced losers.
Amid the AI enthusiasm, numerous other burdens are being pushed into the background. The war in the Gulf is far from being resolved. Blocked transport routes are holding back the global economy and fuelling inflation. In the USA, it now stands at 3.8 percent. Additional strains include a US administration that is squeezing key institutions and unsettling allies, as well as government crises in Germany and the UK. Global bond markets have already reacted significantly to this, with yields to maturity on 10-year US government bonds climbing to 4.5 percent. Meanwhile, equity markets have barely taken any notice, even though highly valued growth stocks are particularly exposed when interest rates rise.
In light of this complex situation, we’re maintaining our cautious stance towards the US market, which is dominated by a small number of highly valued tech stocks. Instead, we’re placing greater emphasis on companies worldwide with strong fundamentals and more solid valuations. This broader positioning has helped us participate more in positive market developments in recent months without excessive exposure to the most expensive market segments. We’re also taking account of the uncertain environment by holding a higher proportion of gold and Swiss real estate than usual.
