Since the start of 2025, European bourses have been outperforming Wall Street – something which only happens rarely nowadays. Meanwhile, the US's well-established leadership in AI has been challenged by China's industry disrupter: DeepSeek.
Founded barely two years ago, DeepSeek operates as an independent AI research lab under the umbrella of Hangzhou-based quantitative hedge fund company High-Flyer. It has come up with an AI model that boasts computing power equivalent to that of ChatGPT, but at a significantly lower cost.
This development has spooked global investors, resulting in elevated levels of volatility among some of the leading tech names. The most significant “casualty” has been Nvidia, whose market value took a vertiginous nose dive and lost nearly US $600 billion in a single day – the largest one-day loss in US history.
Significant losses were also suffered by the likes of Microsoft and Alphabet as investors worried that these companies may have spent more on AI infrastructure than they perhaps should have done.
Is the AI sector in trouble? Not necessarily. Recent development may have rattled investors, but many commentators believe that their reaction was somewhat overblown. Theories abound as to why DeepSeek is not necessarily bad news for other AI-focused companies. Logically, if something becomes more efficient, demand for it will actually increase. So if AI becomes cheaper and easier to deploy, more companies might adopt it, driving demand for even more microchips and software.
In fact, Nvidia, publicly praised DeepSeek’s recently launched R1 model, describing it as “an excellent AI advancement”. The market went on to stabilise following the initial sell-off, with US tech stocks bouncing back: market watchers and traders viewed the pullback in share prices as a good opportunity to add to their positions.
Furthermore, given the importance of the Magnificent Seven to the global stock market, it may be unwise to ditch all exposure to these companies. But the potential for further upheaval as the AI race picks up the pace may mean that you need to be more selective in your company choices, particularly as new incumbents arrive on the scene.
Long before it was used as a currency, gold was revered by aplethora of cultures and religions. Associated with the sun god Ra, ancient Egyptians considered gold to be “the flesh of the gods”. Gold's value has deeproots in human history and several reasons contribute to its high worth, including its rarity and the difficulties involved in mining it, as well as its historical associations with wealth, success and status. Since the start of this year, the price of gold has enjoyed strong upward price momentum and has hit new record highs, driven by fund, investment and central bank buying.
As is often the case, economic uncertainty, inflation concerns and central bank policies have increased demand for gold as a safe-haven asset. Investors have been turning to gold to protect themselves against massive global debt, increased geopolitical tensions and global uncertainty catalysed by factors such as the AI revolution. The volatility created by the first few weeks of Trump’s second term in office has also driven demand for gold.
Then there is China’s growing appetite for the yellow metal as its economy struggles, property prices collapse and its currency weakens. Meanwhile, the BRIC countries are extending their reach and are seeking to move away from the US dollar, factors which also positively impact the price of gold.
Since Trump took office last month, the world has been struggling to keep up with his comments and meanderings about new global tariffs. Other countries have reacted to his threats and provocations, warning of tit-for-tat tariffs on US goods. Uncertainty is rife, but the global stock markets have not – as yet – been derailed.
Trump's decision to stave off the introduction of new global tariffs, and to instead sign an order that – following further study – could lead to the implementation of reciprocal tariffs on a country-by-country basis by 1 April has come as a surprise to many people. Although the move has left both investors and the markets not knowing which way to jump, both were encouraged by the delays: there is now more time for the US to negotiate with its individual trade partners.
Another surprise move was Trump's phone call with Putin – a possible precursor to talks on ending the war in Ukraine. This sent shock waves throughout Europe, blindsiding angry EU leaders. There is a sense that the Trump administration has already made concessions to Putin before negotiations have even begun. Some European leaders fear that the US might agree to a deal with Putin that legitimises the invasion of Ukraine, potentially sidelining European allies from peace discussions – despite their security guarantees and military support.
In Russia, the call was received positively with Putin’s spokesman suggesting that Trump’s attitude was preferable to that of his predecessor. The Russian stock market saw immediate gains on the back of the call and the Ruble strengthened against the US dollar. China's Foreign Minister Wang Yi welcomed the news, expressing his pleasure at seeing Russia and US engaging in dialogue. Some Chinese scholars, however, are reportedly alarmed by Trump’s rush to end the war in Ukraine, viewing his behaviour as an attempt to “break” the Russia-China strategic partnership.
At an emergency meeting hosted in Paris at the start of the week for European leaders, there was consensus that Europe had to plays its role. But Keir Starmer asserted that any future security guarantee for Ukraine would require a “US backstop”, and that we are facing a once-in-a-generation moment for the collective security of the continent. Russia immediately countered, declaring that Europe had zero role to play in any peace talks. The path towards resolving the war in Ukraine looks decidedly thorny.
Times are admittedly highly uncertain. But the markets have shown resilience in the first few weeks of this year: they have withstood increasing AI competition, tariffs and hotter-than-expected inflation, and they have managed to weather geopolitical risks. Indeed, the global economy is predicted to enjoy robust growth in 2025, although China is expected to suffer a sharp slowdown.
Headline volatility looks set to be a factor for some time to come, particularly this year; and corporate earnings in 2025 will likely be influenced by a combination of global economic growth, regional disparities, policy uncertainties and central bank actions. While the US is expected to perform strongly, other regions face unique challenges and opportunities. As ever, we would use any significant pullbacks in the markets to add to quality positions in both equities and bonds.
