DeepSeek(ing) answers
In this January 29th edition of Liquid Real Assets (LRA) Market Update, John Vojticek and team take a look at how public markets viewed listed real assets (real estate, infrastructure, natural resources and commodities).
Click below for the full report, including our Market Commentary, Why it Matters and:
Macro Dive:
Real Assets, Real Insights:
Market Commentary
Global equity markets gave some performance back over the week. The news of the week was the recently released artificial intelligence (AI) model from China-based DeepSeek that promised strong capabilities at a much lower price tag. This triggered a cascade of repositioning as investors tried to ascertain the impact on capex spending, chip and data center demand, and the competitive landscape. The timing of the announcement raised eyebrows, coming shortly after U.S. President Trump’s announcement of the Stargate public/private initiative to secure the United States’ pole position in the AI race. As we will discuss in the sector-specific areas below, the sell-off might have been a knee-jerk reaction given the outstanding importance and needs of the digital infrastructure sector. Not to be outdone generating headlines, President Trump directed the Office of Management and Budget to order a freeze of spending and disbursements aimed at so-called “woke” programs, however, the order was quickly rescinded as chaos followed. The healthcare sector was also impacted by the potential for lower social spending from programs such as Medicaid and Medicare.
Among other indicators we track, the VIX, an index of expected S&P volatility, bounced 10% to 16.6. U.S. inflation breakeven yields rose 5 basis points (bps) for the 5-year segment, while falling 1bp in the 10-year segment. The U.S. dollar weakened marginally, ending at 108 for the DXY index, an average of the dollar’s performance against major peers. Investment grade credit spreads were unchanged while high yield spreads widened 7bps. The U.S. high yield market has a large energy company component and would have been impacted by the negativity in the sector. Gold prices were also up marginally, climbing almost $3 to $2,759. Oil prices fell 4% to $72.62/barrel after digesting potential adjustments to the global supply and demand mix.*
Against this backdrop, Treasury Inflation-Protected Securities (TIPS) and Global Real Estate Securities outpaced the broader equity market, which beat the Real Asset Index. Global Infrastructure companies fell the most, followed by Commodity Futures, and Natural Resource Equities, which all landed in negative territory. Within the Global Real Estate Securities regions, Japan outperformed, followed by the UK, and Europe ex-UK, while Australia, the U.S., and Canada hampered performance. From a sector perspective, Developers and REITs in Japan outperformed, while the Specialty, Data Center, and Office segments suffered in the U.S. Regional themes were similar in the Infrastructure sector with Europe outperforming and the Americas lagging. The Americas Rail, UK Infra, and European Utilities segments outperformed but were outweighed by a poor showing by Oil Storage and Transport in the Americas. Within Commodities, Livestock and Agriculture outperformed, while the Energy and Industrial Metals sectors lagged. Finally, within Global Natural Resource Equities it was a similar story as Agriculture companies led the way and Energy and Metals & Mining companies lagged as the threat of February 1 tariffs being levied by the U.S.*
Why it matters: Volatility will probably remain, well…volatile. Diverging central bank policies, potential trade wars, and new administrations pushing new priorities should keep investors sharpening their pencils in the coming months. We believe that real assets should play a role in investors’ portfolios as they could benefit the risk/return profile in a variety of economic and market conditions.
In the full report:
Macro Dive: This week, we review central bank activity, European sentiment, and economic activity, and finally, recent economic data for the U.S.
Real Assets, Real Insights: This week we will look at the potential impacts of the recent technology developments and government announcements.
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* Source: Bloomberg, as of January 30, 2025
Any mentions of specific properties or securities are for illustrative purposes only and should not be considered a recommendation. Past performance is not a guarantee of future results. The opinions and forecasts expressed are those of the authors and may not come to pass. Forecasts are based on assumptions, estimates, views and hypothetical models or analyses, which might prove inaccurate or incorrect.?Forecasts are not a reliable indicator of future returns. DWS does not intend to promote a particular outcome to the U.S. election (or other countries’ elections) due to take place. Readers should, of course, vote in the election as they personally see fit. All investments involve risks, including potential loss of principal. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index.
Glossary
One basis point (bps) equals 1/100 of a percentage point.
Artificial intelligence (AI) is the theory and development of computer systems able to perform tasks normally requiring human intelligence.
Credit spread is the difference between the yield (return) of two different debt instruments with the same maturity but different credit ratings.
Inflation is the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling.
Investment grade (IG) refers to a credit rating from a rating agency that indicates that a bond has a relatively low risk of default.
A Real Estate Investment Trust (REIT) is a company that owns and, in most cases, operates income-producing real estate. REITs sell like a stock on the major exchanges and invest in real estate directly, either through properties or mortgages.
The spread is the difference between the quoted rates of return on two different investments, usually of different credit quality.
The S&P 500 is an index that includes 500 leading U.S. companies capturing approximately 80% coverage of available U.S. market capitalization.
Treasury Inflation-Protected securities (TIPS) are a form of U.S. Treasury bonds designed to protect investors against inflation. These bonds are indexed to inflation and pay investors a fixed interest rate as the bond's par value adjusts with the inflation rate.
The VIX (CBOE Volatility Index) is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index. It is a popular measure of the volatility of the? S&P 500 as implied in the short-term option prices on the index.
Yield?is the income return on an investment referring to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.
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