Mike's Moment of the Month - October 2023

Global Markets Update (October 2023)

Top Highlights

●????? Prime Minister Rishi Sunak emphasizes the global imperative of comprehending and mitigating AI-related risks to unlock its full potential and opportunities for future generations.

●????? In a significant escalation of the US-China tech rivalry, Nvidia has been instructed by the U.S. government to immediately cease the shipment of advanced AI chips to China, deviating from the initial 30-day timeline set for enforcement. This move is part of the Biden administration's broader strategy to restrict nations, including China, Iran, and Russia, from acquiring high-end AI chips. Nvidia, a leading AI innovator, has not revealed the rationale behind this accelerated decision, but it underscores the escalating technology disputes between the U.S. and China.

US Market Summary

October saw the Dow Jones and the S&P 500 dip by 1.4% and 2.2%, respectively, marking their first three-month losing streak since March 2020. The tech-heavy Nasdaq also extended its own losing streak, declining by 2.8% in October. However, amidst prevailing gloom, there's a glimmer of optimism, with investors drawing inspiration from a historical pattern that indicates stronger stock market performance in the final months of the year.

Source: Factset

October has presented a challenging landscape even for the "Magnificent Seven" stocks that played a pivotal role in driving gains in the S&P throughout the year. Tesla saw a significant decline of 20.5% during the month, reflecting the tough market conditions. Nvidia and Alphabet also faced headwinds, with drops of more than 7% and 5.8%, respectively. In contrast, Microsoft and Amazon managed to buck the trend, posting advances for the month.

Historical data analysis reveals that the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average have typically seen their most robust performance during the last three months of the year. While past performance doesn't guarantee future results, a Dow Jones Market Data analysis of average calendar-year performance highlights this trend. What's intriguing is that the case for stocks to rise in November and December becomes even more compelling when the S&P 500 index has recorded losses in August, September, and October, as it has in 2023.

November traditionally holds promise as a strong month for financial markets, offering a glimmer of hope for traders anticipating a potential year-end rally. However, the prevailing expectation is that a peak in bond yields will be necessary to provide respite to the equity market. While challenges and uncertainties have defined the past three months, investors are mindful of the potential for a turnaround, seeking relief from the recent market turbulence. As we enter November, there is optimism that it may bring a shift in the investment landscape, offering opportunities for market participants to regain their footing.

UK Market Summary

The FTSE 100 ended October on a gloomy note on Tuesday dragged down by commodity-linked stocks with oil giant BP (BP.L) leading declines after it reported lower-than-expected quarterly earnings. The FTSE 100 ended 3.8% lower for the month, marking its worst monthly performance since May. The mid-cap FTSE 250 fell 6.5% in October, marking the worst month for the index in over a year.

Source: Google Finance

The recent surge in UK inflation has been a significant shock to families and businesses, primarily impacting the least affluent. The Bank of England's role is to bring inflation back to the 2% target, and there's good news on that front. Inflation has fallen significantly, and it's expected to drop further, potentially below 5%, when October's data is released. During the recent meeting, interest rates were held steady at 5.25%.

The Bank of England has opted to keep interest rates unchanged for the second consecutive time, in line with the global trend of central banks pausing their efforts to combat rising inflation. As anticipated, the Bank's Monetary Policy Committee (MPC) voted 6-3 in favor of maintaining the Bank Rate at its 15-year peak of 5.25%. The three members in the minority were in favor of raising the rate to 5.5%.

This decision marks the second consecutive meeting with no rate adjustments, following a streak of 14 successive rate increases in previous meetings.

Emerging Market Summary

Emerging markets experienced a 3.9% decline in October, reflecting the broader challenges that financial markets have faced. However, within emerging markets, excluding China, some notable performers included India, Taiwan, and South Korea. India's strength is attributed to robust economic growth and a promising demographic outlook. Taiwan benefits from a thriving semiconductor sector and a depreciation of the Taiwanese dollar, while South Korea gains momentum from a robust export sector and government stimulus measures.

Source: SAXO

Asian markets experienced a notable decline in October, as indicated by the 4.2% drop in the MSCI AC Asia Pacific index. Several factors played a role in this mixed performance, with the strengthening of the US dollar being a significant contributor. The US dollar appreciated by 0.5% in October, as reflected in the DXY Index, which exerted pressure on Asian currencies. Additionally, the slowdown in China's economy had a ripple effect on other Asian economies, further impacting market conditions.

Indian blue-chip stocks faced a challenging month in October, marking their most difficult period in 2023. The persistent sales by foreign investors, driven by elevated US interest rates, exerted downward pressure on the market. Additionally, the rise in oil prices stemming from the West Asia conflict further contributed to the selling pressure. As a result, the benchmark NSE Nifty 50 and S&P BSE Sensex each incurred losses of nearly 3% for the month.

Prime Minister Rishi Sunak's Vision for AI: Balancing Opportunity and Responsibility

Prime Minister Rishi Sunak delivered a speech at the Royal Society, highlighting the immense potential of Artificial Intelligence (AI) to improve lives and likening its impact to previous transformative technological revolutions. However, he also acknowledged the significant risks associated with AI, such as misuse for nefarious purposes and the potential loss of control over superintelligent AI.

Sunak outlined a three-fold approach to navigate the AI landscape. First, he stressed the importance of keeping the public safe by investing in a task force to evaluate AI model safety and establishing the world's first AI Safety Institute. Second, he emphasized global collaboration through hosting the inaugural Global AI Safety Summit, bringing together stakeholders from civil society, AI companies, and advanced AI-using nations, with the goal of establishing a shared understanding of AI risks and forming a global expert panel for continuous assessment of AI safety.

Source: The Law Society Gazette

The Prime Minister highlighted that the UK is committed to becoming a global leader in AI safety, which is expected to attract investment and job opportunities. The government is investing significantly in supercomputing and quantum computing to strengthen AI capabilities and aims to make this computing power accessible to researchers, businesses, and government. Additionally, the UK is supporting AI initiatives dedicated to addressing societal challenges such as nuclear fusion, world hunger, and healthcare breakthroughs. Sunak's message is clear: embrace the potential of AI but do so with a vigilant eye on the potential dangers. Accelerating AI chip export restrictions to China can disrupt supply chains for Chinese tech companies, potentially slowing down AI development and innovation. National security concerns may underpin these restrictions, impacting global trade relations and the competitive landscape of the AI industry. Individuals, businesses, and governments all share the responsibility to ensure the responsible development of AI. By working together on a global scale, we can harness the transformative potential of AI while safeguarding against its risks, shaping a future that benefits everyone. This includes empowering AI to revolutionize healthcare, address world hunger, and provide sustainable energy through nuclear fusion. But are we ready to embrace the boundless possibilities AI offers while safeguarding against its potential risks?

U.S. Accelerates AI Chip Export Restrictions to China

In a significant development in the ongoing technological face-off between the United States and China, tech giant Nvidia has been directed by the U.S. government to halt the shipment of advanced artificial intelligence chips to China, with immediate effect. These restrictions, which were initially scheduled to be enforced 30 days from October 17th, come as part of the Biden administration's broader strategy to block several nations, including China, Iran, and Russia, from acquiring high-end AI chips produced by Nvidia and other companies. Meanwhile, Sanctions have significantly reduced U.S. exports of chips and manufacturing equipment to China.

Source: Apricitas

Nvidia, known for its AI innovations, faces accelerated export restrictions amid the technology dispute between the U.S. and China, driven by concerns over military technology transfer. Nvidia's AI chips, initially for the Chinese market under previous regulations, now face uncertainty. The company remains confident in its financial outlook, citing robust global demand. China criticizes these restrictions as against market principles and aims to close regulatory loopholes. Advanced Micro Devices (AMD), another AI chip supplier to China, hasn't commented on the export restrictions.

This development underlines the intricate relationship between global tech progress and geopolitical tensions. As nations compete for AI supremacy, companies like Nvidia must adapt in a swiftly changing regulatory landscape. It's crucial for all stakeholders, from governments to corporations, to engage in constructive dialogue to ensure the responsible and equitable use of AI. This move, while not immediately affecting Nvidia, emphasizes the need for a measured approach to address the complex challenges posed by AI in our interconnected world.

China's Q3 GDP at 4.9% reveals a stable growth trajectory yet concerns loom over Q4 due to escalating U.S.-China tensions. The accelerated AI chip export restrictions can impede China's AI industry, a crucial GDP contributor, impacting tech-related sectors and overall economic output. Reduced access to innovative AI technology may hinder innovation. As the trade and technology dispute with the U.S. evolves, assessing China's economic performance in the coming quarters remains a key concern. Investors should diversify their portfolios to mitigate risk and monitor regulatory changes that affect tech companies. While geopolitical tensions can lead to stock fluctuations, assess tech firms' long-term prospects, and consider opportunities in companies facing less scrutiny.? As always, drop a DM if you have any questions on how you can explore these trends to create a sound financial plan that will help you to stay winning. Remember to stay invested always ??.

Michael G Donkor