In the latest exclusive interview with renowned technology and finance media outlet Finance Magnates in November, David Barrett, CEO of EBC Financial Group (UK) Ltd, shared his insights on a wide range of topics like Fed rate hikes, tech stocks, renewable energy, weakness in the Yen and the application of AI technology on trading.
Fed Rates Remain High Amid Regional Clashes
The interview began with a discussion on the predicted impact of inflation in the market in 2024, David claimed risk assets would shine again if there appears to be any sustained dip in inflation. However, he warned that uncertainty in the near future would still be high given the escalating geopolitical tensions, more-sticky-than-expected core inflation and the upcoming US presidential election.
“I do see a ‘higher for longer than the market might like’ type scenario playing out and I do not dismiss another round of inflationary pressure,” he said.
In terms of asset deployment strategy, he suggested reducing risk exposure and increasing cash allocation. He was not convinced that investors had fully factored in the longer-term effects of rate hikes. “Being able to earn 5% risk free in cash as we see the geopolitical tensions unfold doesn’t’ seem like the worse trade in the world,” he said.
Tech Stocks: Free Money and the Cost of Getting Wrong Have Changed
Regarding the massively outperformed tech stocks, David speculated about the possibility of profit-taking this year, particularly concerning “the Magnificent Seven.” Moreover, he emphasised the rising costs of innovation. “Technology is a sector that gets more things wrong than it gets right as it innovates and looks for new products,” he said. “The last two decades have allowed the sector to boom on free money – the cost of getting it wrong has been small enough that they just kept going – this has changed. “
In October, the yen fell below 150 per dollar, prompting concerns about forex intervention among traders. He downplayed the need to protect at a specific level as it cannot change the primary factor driving the weakness – yield spreads. “The authorities do not seem to be in a hurry to untie the complicated knot they have made for themselves,” he said.
AI And the Future of Trading
David also talked about the outbreak of AI technology and its application in trading. He said it’s mainly used by institutional clients as a tool to avoid adverse market moves. “They want the decay of the price to remain stable for as long as possible post-execution, so that other clients are able to take them out of the risk and create spread income,” he explained.
“This works well in stable markets but anything that reduces that window of time (news, large flow or tricky client flow) means they have to hedge out of the position they hold sooner than they would like.” He claimed
Lastly, he warned the real test has yet to come for risk managers as rising volatility begins to hit all sectors of the market against the common strategy designed to navigate low volatility.
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