The Factors Shaping Tomorrow’s Markets

[Music] all right so we're going to be talking about the factors shaping tomorrow's markets which really could could take us anywhere we could talk about tomorrow we could talk about the medium term the long term uh as many of you know I present a show on on Bloomberg TV and I would say most of the conversations I've had in the past month have been dominated by the three T's Trump trade and tariff when you talk about anything to do with 2025 I'd also add one extra Dimension to that AI is is also the big theme as well so with that there's going to be a lot to talk about Alex I'm going to start with you uh given how broad your Geographic remat is um how much of a feature is geopolitics and geopolitical considerations in terms of where you think the factors driving markets are going to come from so I would say that geopolitics is probably the most used bus word uh uh these days um and and what's important is uh the fact that you know for for many locations in the world and I I speak for Europe first and foremost it's an untrained muscle right up until very recently we didn't care about geopolitics uh that much since the end of the Cold War this Factor has not been seen as a risk factor really and and today it is and we need to adapt and accommodate to that muscle very quickly and across all markets you see this Factor obviously playing out a because it adds volatility we know not just because of the latest elections in the US that you know additional tweets and additional messages can very quickly lead to Market distortions that need to be taken into account what that means is it leads to shortened investment Horizons for those markets that are being seen as affected or potentially affected by geopolitical negative driving forces it will consequently lead to an increase of investment uh uh teners and the size of capital inflows for those markets then can provide stability and that are let's say Sacro suned over the question on how geopolitics do evolve which by the way is something that I think this part of the world this region and the UAE in particular very much benefit from because both what I said in terms of knowing how to navigate in geopolitical difficulties is something this region is well trained in m b it does provide a lot of stability ultimately safety legal Clarity ability to operate globally and uh you know be also pragmatic with respect to relationships on to other to other nations yeah Raymond maybe we can touch on uh the opportunities in EM um perhaps at another point in the conversation but I also just want to ask you about another topic that we tend to talk about a lot and the market reacted the day that Trump announced that Scott bessent was going to be nominated for treasury secretary namely because one of the things he said recently caught people's attention and that he is focused on reducing the size of the US deficit and it feels as though debt Dynamics the size of the US deficit specific not just specific to the US but around the world people are concerned about French Deb Dynamics now about UK uh Emerging Markets always it's bug not a feature and I I just wonder to what extent we're going to see all of these factors come together in 2025 if at all or is it just something to think about on the back burner it's it's a very valid question uh Jama and it's top of my mind uh probably top of my list of concerns uh when I think about debt sustainability at large it's not just the headline level of debt you know we know that the US is in a post World war2 high around 120% but that is also shared by many other Western uh SoCal market economies as well um I've recently relocated to Geneva from London and the memory of a Liz trust moment is still fresh in my mind and I think many of my uh fellow British uh uh colleagues in the room as well but what was interesting about that moment is it wasn't catalyzed by a particular debt level it was catalyzed by a crisis of confidence and that's an intangible that can happen at any moment and it's very diff difficult to predict and to prepare for when you have a stock of debt and let's take the US coming back to your example where 8 trillion of debt needs to be refinanced in 2025 alone that's 30% 30% of the US Treasury stock and that's without even accounting for new debt incurred the chances of an auction which maybe doesn't go as according to plan or one of these kinds of situations I think cannot be ignored and I that becomes more than just a tail risk at this point in time we've seen in Europe for example Greek yields trading at lower levels than French yields who would have once thought that possible yeah yeah so something to think about for next year then absolutely okay cavier let's take you to the buzzword that everyone wants to talk about all the time and also the leadership in stock markets is coming from a handful of stocks uh let me just ask you given your role as Chief Innovation officer at Black Rock artificial intelligence you have a level of understanding that perhaps nobody in this room does have uh where are you still finding value these days in AI applications um value is um found in different areas for everybody uh it depending where um where are you interesting here uh the the the number one thing you're asking about people is around productivity which um this is something that it's working progress uh people are looking to find Value into this whole uh chain uh you know chap to AI what I would call and um in the cheap to AI um story um you know I think um UAE in particular um is taking a leadership role uh where basically um um you know investment in the area of infrastructure uh they are very very much on their mind and um you know as much as we are right now into the training mode so everybody wants to build models that they are a million time faster that we currently have uh you know hoping that this way we'll get maybe to something like a GI and where basically you're going to have an Einstein uh you know sitting behind you and giving you an answer to everything that you need and directing you accordingly um that point we might be more into the inference mode which currently we're talking a little bit less about it so that's another area of value so you have value in the uh into the actual stack of building the AI on the application Level it's productivity and the secret Source it's um coming out through the data that you actually have so that's kind of what you're going to have uh to take out value from and otherwise building the whole stock I think uh these are the areas that uh I will kind of Define as the areas of value Alex bringing it back to the title of this panel the factors shaping tomorrow's markets do do you get the sense that uh investors are chasing those companies that uh are making the most use of AI applications and are looking to gain the most productivity wise out of them is is that where the money is going right now I I think from a capital Market perspective you see undoubtedly a lot of money going into the sphere but not so much an organizations that are adapting and accommodating AI technology rather than those that are the source of new technology which is still obviously more in the face of venture capitales kind of domain the next chapter will indeed be who's making the most out of it right and so whilst we're still in this first chapter as in previous Cycles I I guess there will be you know a lot of money will be burned uh a lot of money will also end up with tremendous returns but there will probably be it's fair to say that shortterm there's probably a hype longterm it's still underestimated in terms of what it can do and the question on organizations whether they will benefit from it or not will very much be uh path dependent on the adaptability the opportunity you really build this into your process you replace it by the way it's not just AI I think AI is in Next Step many traditional organizations still can benefit from very rural Automation and you know incubation of Robotics before we talk about AI but in any case there is a meaningful upside but it's you know it's it's key from a managerial standpoint and also from another angle and that is demographics because we're all facing by the way that's all inflationary you know the shortage of Labor regardless on what industry you're talking about when you look at you know Western Nation in particular the adaptability and the speed thereof will very much decide on how you do in terms of global competitiveness yeah but it's it it is so important a discussion uh also in terms of Market sentiment and if you look at just the S&P this year you know on track for 30% gains but actually I read somewhere that about 20% of that or maybe even more is driven by one stock only and that is NVIDIA and so on a day where Nvidia is down it tends to have repercussions across the broader Market because leadership has been so concentrated when you think about the risk factors for for next year do you worry that perhaps the concentration of the market and the focus on the market on just a handful of stocks could be problematic I think uh the concentration of monies uh if that is your point probably not so much I mean we've talked about you know the Magnificent 7 and the like we we know that there are components where certainly repricing will take place I think the larger issue will be determined by the fact on how certain Regions locations markets and businesses really will evolve we haven't really seen the end of the test on all the monetary stimulus That central banks have started to take out of the system yes they're now reducing rates they will probably not in particular in the US not reduce rates as much as the market was predicting up until lately one of the reasons is that underlying inflation is still very sticky and when you look at uh areas like commercial real estate where the those implications of higher interest are much bigger to the negative here we have probably not seen the end of the pain I would rather worry about those components and industries in general that are um you know victim to we talked about geopolitics but you know the frictions that we're seeing in Supply chains which have been initiated through the covid aspects and are now ridling through you know with more political noise tariff threats and the like the adaptability of of some Industries has not been accommodated for this is probably where I would rather see the next the more imminent concern from a market Point yeah Raymond I want to go back to something that Alex said earlier about geopolitics and that uh it actually may create opportunities for uh countries or jurisdictions that know how to navigate those geopolitics better and I just wonder from your standpoint many years of investing uh across the world whether you think Emerging Markets uh are better equipped to deal with what could come uh assuming that Trump Administration does come back starts imposing uh higher tariffs and we move back towards a more protectionist regime can em assets still do well in that environment um not only um can they I think they actually will outperform and I do think it's different this time you know that's the perennial question we always get in Emerging Markets is it different from this time Jama right and I truly believe it is and and here's why um the the Tariff Dimension isn't new it's a blunt tool which has been used in the past it was used as recently as 2018 by Trump it's interesting to look at what happened at that point in time actually the impact on Emerging Markets was extremely muted there was a more direct causal effect on China but that very quickly diverted in terms of trade channels to the rest of Asia and to the rest of em as well I think I think that that's a very good precursor and a very good signal on what's likely to come now of course um if we go from 10% to 60% in China that can have an impact on China and Chinese GDP and I think that's actually going to be a greater determinant On Em U profiles and outcomes than ultimately the us but but really at the end of the day um em is in better shape than it was before it's more independent and codependent let's take Asia as an example in the broader Asian in the broader Emerging Market sphere 50% of their trade is done with each other MH you go back two decades and that number was 25% so they're increasingly with every passing Year delinking from a dependency on the US and thereby the shock impact of a tariff but what's more important is their codependency on each other and Asia is a prime example of this with all the regional blocks including the RCP most recently so I'm very positive on that outcome I think that will provide a strong uplift to growth and ultimately em performs when their growth is better than developed market growth and I think the the the center stage is poised very well for that interesting uh I I I wonder cavier whether AI uh also gets gets caught in the crosshairs of of geopolitics because you have certain countries imposing restrictions on chip exports because of concerns about the passage of data Etc do you think that that is going to sty the growth of various Industries companies in certain jurisdictions because of these various barriers that are going up I think um indeed there is U some kind of um AI U Geo movements um that is the story of um the data that you can use at the end of the day uh you know beside going and scrapping the internet when you need to go deeper into actually having you know important data data that it's related to certain uh jurisdictions so that's kind of an element of localization or globalization of AI then uh it's going to be uh the story indeed of uh manufacturing of Hardware uh it's very interesting but I think um in addition to that you're going to see um you know certainly hyperscalers they are the ones running this story right now and um the way that they are going to deploy this type of infrastructure is going to be very much dependent on where this uh uh power is going to be available for such kind of uh uh environments if you're looking into the largest data centers today in the world even that hyperscalers are developing are in the range of I don't know up to say 200 megawatt and when you're looking into uh what was discussed uh uh as relating to the requirements for um uh facilities for these next Generations of AI we're talking about um a couple of gigs and I think the the highest number was mentioned you know to the president in the United States it was something like 9 gwatt of power well these are very significant amounts of infrastructure that together with the element of uh uh you know the the chips deployment together with the element of data that I mentioned before creates kind of very special type of mix of what is the art of possible into these kind of things but there is no um there is no running away you know I think um if you're looking into the next five years currently the companies that they uh jump on this U uh story of AI about 14% are high growth companies with AI embedded in in the next 5 years this will be something like 65% market and uh to Alex point you know in addition to AI it's going to be robotics there there going to be all kind of areas of uh uh you know uh uh in the areas of health and all kind of other things that they are going to shape the the future um Global Market uh if you want and the companies that they are going to be relevant in 2030 yeah uh we've got a couple of minutes but I want to ask a few more to Alex and Ray uh Alex Europe it seems to be stuck in a bad place in terms of growth at the same time valuations are getting cheaper and cheaper could this actually be a year where Europe starts to outperform because the valuation play is there or is it that because growth and growth Dynamics growth productivity all of that looks low people are just going to stay away Europe has to is the the CH answer undoubtedly I think there's a rising uh understanding on a European level uh the the recent uh frictions and instability you've seen on uh with respect to governments Germany France are to a large extent also d by the economic um situation um unfortunately it's a bit complex and not as Speedy as one would hope but but Europe will get its act together at the end of the day there will be very soon a more Pro bus reform agenda which is undoubtedly required because when you look at the growth differentials between Europe and other locations around the world including the us then undoubtedly Europe needs to really Step Up um again it will take time but the the willingness is rising and the pressure points are also mounting because uh entrepreneurs economic decision makers are are crystal clear otherwise we know what's happening Capital will flow to other locations where growth uh opportunities can be monetized y Raymond 30 seconds only I'm afraid we're going to have to stop it there I'm so sorry but they're really running out of time and the music will drown you out thank you panelist thank you [Music] what