Investors Warn on AI Bubble Risk
Investing.com — Investors should be more concerned about the potential burst of the AI bubble than a looming U.S. or global recession, according to strategists at BCA Research.
The firm’s analysis warns that the risks associated with the booming AI sector outweigh those posed by broader economic downturns.
“When bubbles burst, the investment priority is to steer well clear of the bursting bubble plus sectors, regions, and countries heavily exposed to it,” BCA Research emphasized.
This means that whether or not a recession follows the bubble’s collapse, the focus should be on avoiding areas most affected by the fallout.
Key Strategies to Mitigate Risk
On a cyclical 6-12 month horizon, BCA Research says there are several key strategies to mitigate risk:
- Stay Overweight in Bonds and the Japanese Yen (JPY): These are traditionally seen as safer havens during periods of market turbulence.
- Underweight U.S. Tech and Quasi-Tech Sectors: These sectors are most closely tied to the AI boom, so investors should reduce their exposure in a global portfolio.
- Caution with SGD/USD: The note adds that tactically, SGD/USD is vulnerable to reversal, suggesting caution for those involved in the Singapore dollar and U.S. dollar currency pair.
- Consider Long Copper versus Gold Strategy: BCA Research sees this as a viable countertrend trade, potentially offering a hedge against broader market risks.
Conclusion
The overarching message from BCA Research is: “Investors should worry much less about a U.S. or global recession than they should worry about the bubble in anything AI-related.”
As the AI sector continues to draw immense attention and capital, BCA believes the potential for a sharp correction poses a significant threat, making it a critical factor for investors to consider.
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