A monthly survey of investment fund managers by Bank of America revealed a cautious optimism prevailing in global markets. While investor sentiment regarding the performance of the global economy reached its highest level in over two years, concerns are simultaneously growing about the formation of an investment bubble, particularly in the booming technology and artificial intelligence sector.
According to a survey of 162 managers overseeing $440 billion in assets, expectations of a “global boom” have reached their highest point since February 2022. Expectations for corporate earnings growth have also surged, exceeding 10%, their highest level since 2021. This optimism has led investors to increase their investments in riskier assets such as stocks and commodities, while reducing their holdings of safer bonds. Despite this, the survey also revealed a rise in funds' cash balances to 3.4%, reflecting a desire to hedge against potential volatility.
A complex economic context: from inflation to hopes for a "soft landing"
This paradoxical situation follows a turbulent economic period. After recovering from the COVID-19 pandemic, the world faced an unprecedented wave of inflation that prompted major central banks, most notably the US Federal Reserve, to adopt tight monetary policies and aggressively raise interest rates. Now, markets are hopeful of a “soft landing” for the economy—that is, controlling inflation without triggering a deep recession. This hope is the main driver of current optimism, as investors expect central banks to begin cutting interest rates soon, thereby stimulating economic growth.
The bubble specter: Will artificial intelligence repeat the “dot-com” scenario?
On the other hand, the potential collapse of AI stocks tops the list of risks worrying investors. The meteoric rise in these companies' valuations is drawing comparisons to the dot-com bubble of the late 1990s, which ended in a major market crash. A significant portion of survey respondents believe that companies are overspending, and that senior investment officers currently prefer strengthening balance sheets to increasing capital expenditure, indicating concerns that current valuations may be inflated and unsustainable.
Global and regional impacts
This atmosphere of optimism and anticipation has far-reaching implications. Internationally, a thriving global economy means increased international trade and improved performance in emerging markets. Regionally, for oil-exporting Gulf states, strong global growth supports stable energy prices, boosting government revenues and bolstering economic diversification plans such as Saudi Arabia’s Vision 2030. However, the bursting of any potential technology bubble could trigger a global sell-off that would negatively impact all markets, including regional ones, and hinder foreign investment flows.
