“I asked ChatGPT what the number one disruptor would be, and the answer was AI,” joked William Telkes, chief economist at Spuerkeess. He suggested it is too early to say how AI will disrupt the economy and that only time will tell.
Ingrid Garin, head of markets at BNY European Bank, sees a role for AI when it helps with “simple flows, productivity, transformation and to free [up] employees to refocus on strategic tasks adding value.” Interestingly, she commented, without being specific, that “you may want to use it in the trading room but want to ensure that regulation, governance and risk management are following.” Not surprisingly, she favours integrating AI in “a slow and steady manner.”
Given the enormous and continuous need for energy, Lionel De Broux, chief investment officer at Banque Internationale à Luxembourg, thinks that AI “could trigger significant changes in public policies in the type of energy it should use.”
Maud Reinalter, chief investment officer at Belfius Asset Management, noted that covid and Russia’s war in Ukraine have disrupted the way economic agents are handling supply chain priorities. She explained that security used to play a secondary role behind economic efficiency. She observed that a secure access to raw materials has become a priority over a supplier in the country offering the cheapest prices.
Elsewhere, Garin expressed her concerns about capital flow shifting toward non-regulated entities. De Broux thinks that if Trump loses the upcoming presidential election, that may result in even more violence compared to the aftermath of the 2020 elections.
The comments came during the Bloomberg Luxembourg Investment Summit on 24 October 2024.
Institutional framework on the move
“I think the US will still be attracting a lot of investments and will still have higher potential growth,” commented Telkes. However, he is less optimistic about Europe, which suffers from competitiveness issues that need to be tackled with new measures to be agreed upon and adopted by member states.
There is innovation, there are solutions, there is animal spirit… also in Europe
“We need to focus on our strength in Europe... It is not all gloom and doom,” stressed Garin. She is confident about the development in research in places such as Paris and Berlin. Reinalter concurred with Garin pointing at the moment when Europe decided to put its act together to tackle climate change. In time of crisis, “there is innovation, there are solutions, there is animal spirit… also in Europe.”
However, Garin suggested that more effort must be directed at developing investment infrastructure, a weakness compared to the well-oiled US investment machine where decision-making is fast. In addition, she thinks that “it is a shame” that European companies need to get their financing, through IPOs for instance, in the US.
However, De Broux warned that higher investment in Europe from the public sector will be restrained by budgetary hard choices given the demographic pressure, a tense political scene preventing cuts in expenses and the fact that 30% of the countries in the eurozone have deficits above 3%. He thinks that the priorities will be on a combination of lower expenses and higher revenues.
Reinalter explained that financing innovation in Europe goes in large part through small caps. Consequently, finding solutions to foster innovation is key “to improve growth which will result in higher valuation.” However, these equities display little liquidity and require institutional investors to trade in blocks on exchanges. “We see basically all the liquidity going into ETFs and big and successful companies.”
Investing in a world experiencing deglobalisation
Telkes is concerned about the ongoing geopolitical development whereby developed countries and emerging countries are following different routes. “I hope that it will not expand and that we will come back to something more global, as it will affect [negatively] everyone growth potential.”
To hedge against the consequences of deglobalisation, Reinalter straightforwardly affirmed that Belfius invests in gold. She explained that central banks are also pressed to deglobalise and are large buyers of gold to “become independent from the US.”
As globalisation was one of the main investment themes of the last decades, De Broux explained that nowadays, Bil targets companies that are “stronger on the local side in terms of productivity at attractive prices.”
Reinalter appears very bullish in UK and European small caps. Belfius expects the “UK economy to rebound,” whereas she thinks that the rate cuts from the European Central Bank will be “very supportive.”
What type of landing for our economies?
Simmons from Bloomberg commented that the IMF is projecting the US economy to grow by 2.2% in 2025 compared to a global growth of 3.2%. These figures and other data “confirm a soft landing for the US economy… that is more probable than no landing,” affirmed Telkes. Yet he admitted that the likelihood of a “no landing” has increased. Consequently, without being specific, he expects more rate cuts from the Fed.
De Broux thinks that “Europe is on the edge of moving from soft landing to hard landing.” The playbook of Bil includes a steepening of the yield curve while it stays cautious on US long-term interest rates.
