Making sense of this crazy world
Take your pick or diversify?
It’s possible to make a sound case for most investment scenarios, and there are certainly some compelling trades around AI and its broader ecosphere. However, whilst some AI companies are making huge profits, the question being asked is, will it be enough to justify elevated valuations?
On Wednesday, stocks pulled back from record levels after a weak artificial intelligence sales forecast around chips from a company called Broadcom. Its shares fell by 12%, and $285 billion was wiped off its valuation. Yes, you read it right, $285 billion!
It follows that yesterday in the US, it was technology stocks which were the weakest, with the Nasdaq Composite finishing slightly in the red, whereas the Dow Jones, the domain of more traditional industries, rose by 1.73%.
Clouding the picture is the behavioural psychology around investing. Move to cash and miss out on gains? Or embrace the markets with the potential for increased volatility? There is no doubt that a rotation into more defensive assets is underway, but there are still plenty who are motivated by dynamic gains.
Opportunities are still opening up, and no more so than around energy independence and resilience.
Southeast Asian markets have this week, again, reached a record high, but Indonesia, the region’s biggest country, has seen its main stock market hit a 5-year low.
Not faring well, too, is Bitcoin. We’ll take a brief look at what’s been happening here and why it seems to have lost its shine.
Recovering its shine, domestically, is China – or at least the early signs are unfolding.
This week’s content:
- Growth under pressure
- Greed more than fear
- The UK services sector contracts
- Energy resilience is back at the top of policy agenda
- Indonesian stocks fall to a 5-year low
- The latest Bitcoin sell-off
- Is China’s domestic market seeing a recovery?
- Conclusion
Growth under pressure
It’s no surprise to hear lots of analysts say that growth will be under pressure should the Middle East conflict continue. The Organisation for Economic Co-operation and Development’s June economic outlook was even entitled ‘Under Pressure’.
EPIC Investment Partners summarised the report, which reinforced the case for high-quality sovereign debt (government debt). The report highlights a weaker global backdrop as the ongoing US-Iran conflict and associated energy shock weigh on activity, with global growth projected to slow from 3.4% in 2025 to 2.8% in 2026.
Against this backdrop, the report states that investors face a combination of softer growth, elevated inflation, and heightened geopolitical uncertainty. Policy makers are also confronted with weakening demand and rising downside risks to activity. This environment increasingly favours high-quality fixed income exposure, particularly sovereign issuers with strong external balance sheets, substantial reserve buffers, and positive net foreign asset positions. As a result, these markets are better positioned to withstand prolonged volatility.
Continues…
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Risk warning
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.