The Rise of Artificial Intelligence and Central Bank Rates in the U.S. and Europe open opportunities for investments in both technology and Fixed Income, said experts from Pictet and Edmond de Rothschild at an event in Montevideo.
The experts, Tiago Forte Vaz, CFA, Head of Intermediaries at Pictet for Uruguay, Brazil, Portugal, and Argentina, and David Hayon, Head of Sales Latam at Edmond de Rothschild Asset Management, commented on the macroeconomic scenario, agreeing that the U.S. economy is strong, which is delaying interest rate cuts.
“The resilience of the U.S. economy is noteworthy. Even Fed members weren’t this optimistic. There was talk of a recession. Rate cuts were expected, and everyone was wrong,” commented Hayon.
Forte also emphasized that inflation is the most important issue to address and noted, “The year started optimistically, but central banks didn’t adjust until September.” The expert added that this is a significant risk as the Fed “lost credibility and is willing to tolerate a greater slowdown to avoid inflation.”
Hayon, for his part, supplemented the comment by explaining that Europe has more control over inflation but will try to align rate cuts with the U.S. to avoid generating inflation.
Geopolitical Risks
Both experts said that “it is impossible not to talk about geopolitical risks.” It is a latent conflict that could escalate, commented Forte.
However, Hayon tempered this by stating that they do not believe Europe will intervene militarily in the conflict. “We don’t imagine French troops in Ukraine,” said Hayon, adding that it is believed “the conflict will be played out in negotiations to achieve an end to the conflict and avoid escalation.”
Another geopolitical risk is that 70% of the population will have elections this year. Among the most notable countries are the U.S., India, Mexico, and Russia. “This environment creates tension and uncertainty that is difficult to diversify at the portfolio level,” added Forte.
The event, moderated by María Camacho, founding partner and director of strategy at LATAM ConsultUS, also included time for strategy presentations.
Pictet: Artificial Intelligence, Bubble or Opportunity?
Forte began by asking the audience, consisting of financial advisors from the Montevideo industry, whether it is still a good time to invest in Artificial Intelligence (AI).
The regional representative emphasized the concept that technology is overvalued in the present and undervalued in the future. Forte added that it is expected that spending on technology as a percentage of GDP will double.
He also noted that although the world has already been revolutionized by AI technologies, they are still in an early stage. However, “it is growing at an exponential rate.”
Regarding investment challenges, he mentioned the tension over semiconductors between China and Taiwan and “sufficient opportunities” in public markets for these strategies.
Edmond de Rothschild: Fixed Income Still Attractive
From Edmond de Rothschild, Hayon highlighted the importance of fixed income, especially in developed markets.
The expert pointed out that although spreads have narrowed significantly, total returns are good due to high rates and warned, based on the rate context explained, that there is still time to invest in these assets and achieve very good returns.
He also commented on the benefits of subordinated fixed income. Hayon emphasized the possibility of buying hybrid bonds, where the investor buys bonds with the security of investment grade but with the yield of high yield. “Buying subordinated debt from banks and insurers will pay well,” he elaborated.
During the presentation of the EDR SICAV Millesima select 2028 investment strategy, the expert highlighted the high risk of losing reinvestment when in cash.
Today, rates can provide good returns over a year, but fixed income exceeds that return over four years.
