The furor over stocks, cryptocurrencies and other risky placements hides a structural problem that threatens to suddenly explode.
The rise in financial asset prices is shocking in the developed world. Stocks on US exchanges, such as the S&P 500, closed last week at a record high and are up 20% for the year. Since 2016, this index has doubled its value measured in dollars, increasing by more than 100 percent.
In the world of cryptocurrencies, this trend seems to be replicated, but at exacerbated levels. Crypto assets like Bitcoin have managed to increase their value almost 10 times in less than a year and a half. And after a few months of volatility and declines, they seem to be experiencing a new price boom. The world’s second largest cryptocurrency, called Ethereum, also continues to rise.
Despite the market euphoria, more cautious investors warn that the scope for these increases to continue looks increasingly limited. Experience shows that sooner or later financial assets can suffer sharp corrections in a global economy where basic problems exist in coordinating pandemic recovery.
From economists identified with the US financial establishment, such as Nouriel Roubini, to leading academics of global progressivism, such as Yanis Varoufakis, warn that the furor in stocks, cryptocurrencies and other financial investments hides a structural problem that threatens to suddenly burst in the form of a bubble.
For the big investment managers, the situation implies a crossroads: if they start withdrawing their investments, they have a huge opportunity cost if the price trend continues and the financial run continues. But if they hold on too long, the risk of a price collapse increases from within. The aftermath of the 2008 crisis is hard to erase.
For this reason, one of the main questions for managers is how to diversify investment portfolios without losing returns. Asset mixes by region, new industries and companies adapted to abrupt changes in consumption patterns are being analyzed in every possible way to try to find a combination that fits the keyword: resilience.
The main goal is that the crisis, should it occur, hits less hard and that profits in the medium term can remain unchanged. Sectors such as the healthcare sector, which after the pandemic seems to be booming, and companies linked to environmental issues are being considered. However, the most sought-after sector is probably artificial intelligence-related companies.
For some engineers, economists and investors, artificial intelligence is the most important technology of this century and, despite its detractors, they believe it will lead the transformation of societies in the years to come. Global powers are investing billions of dollars to develop this technology. China leads the way with over $150 billion allocated to research and development.
Through companies such as Google, IBM, Amazon, Facebook, and Apple, the US is estimated to have indirectly accumulated investments of over $55 billion since 2015. Microsoft alone has a team of 8,000 artificial intelligence researchers. Canada and Israel are other frontrunner countries.
Large mutual funds are closely following this trend, and stock indexes composed of technology-related companies are starting to become stars of the market. For example, the ETF called ARK Autonomous Technology & Robotics has accumulated a gain of more than 66 percent over the past year. It consists of companies such as Tesla, JD.COM, Kratos Defense, Trimble, Alphabet, Baidu, Iridium, 3D Systems, Unity, and Unipath.