It’s an election quarter – Make your mark


Geopolitical issues remain front and centre in the news as the situation in the Middle East escalates. Global shipping routes, affecting logistical supply chains and the supply and price of oil, have come back into focus for global trade just as disinflation has started to slow down. Suddenly inflation’s smooth path back to the United States (US) Federal Reserve’s (Fed’s) target has been interrupted, and bond yields have taken note, jumping higher as rate-cut expectations have been expunged for 2024. Add to that the frugal fiscal spending by the US government in an election year, and before you can say “Trump”, the market has already added an additional half a percent to long-term interest rate risk premia. Memories of the yield-led market sell-off of 2022 have come rushing back, but this time round technology stocks have the artificial intelligence (AI) theme to throw at any detractor.

The AI theme has been very strong since the third quarter of 2023 and has been responsible for a large proportion of stock market gains since then. The reality, however, is that yes, AI will change our lives, but it will take time for the monetisation benefit to filter through to new business models or for savings to stem from existing ones. You have to spend money to get the benefits, so the earnings uplift isn’t front-loaded. The market has started looking more rationally at tech and the benefits of AI and has taken a bit more of a cautious stance for now. This is very healthy for markets as overzealous risk appetite and market valuations get tempered.

The elections in India and the United States will be crucial for our investment universe. Both carry the potential for major policy changes that can have large impacts on certain asset classes and the respective currencies. Many scenarios are possible, with a wide variety of possible outcomes and impacts. At Peregrine Wealth, we maintain a cautious stance in all this uncertainty.

Enjoy this edition of PEREGRINATION.