Commentary: Every investment portfolio looks like the same trade - AI

Every investment portfolio appears to be riding the same wave - a heavy dependence on Artificial Intelligence (AI). Katie Martin, reporting for the Financial Times, highlights the alarming reliance of portfolios on AI. Despite the potential of AI to revolutionize various sectors like stocks, real estate, infrastructure, energy, emerging markets, and private equity, portfolios are increasingly entangled with this technology.

The result is a shared risk amongst investors, making it hard to diversify properly. The S&P 500, traditionally a benchmark of market performance, has reached a record high due to tech stocks, but when AI is removed, the index has dropped by 7 percent since the end of August. This phenomenon is further evidenced by the S&P on an equal-weighted basis, where the top-heavy typical index and its more even-weighted cousin differ significantly.

As AI dominates the global financial system, professional investors are finding it challenging to diversify and shield themselves from potential downturns. The AI boom has inadvertently boosted the value of the US dollar as non-US money pours into dollar-denominated assets, but the long-term economic implications of AI remain uncertain.

Policymakers are divided on the impact of AI on inflation, with some believing it will pull down inflation and others fearing it might push up inflation.