Several core macro themes are shaping investment strategies amid a rapidly evolving global landscape. One significant consideration is the potential for artificial intelligence to be inflationary due to substantial spending and bottlenecks, rather than deflationary by significantly displacing labour. Persistently high public spending and low unemployment in countries like Australia are also contributing to inflation stickiness.
Another theme revolves around the mispricing of interest rate risks and a potentially hawkish pivot from the US Federal Reserve. Rising gas prices and geopolitical tensions in the Middle East further compound these concerns. Donald Trump’s influence on global trade, foreign policy, and conflicts cannot be underestimated, fundamentally reshaping international relations.
Finally, investors should avoid default risk and prioritise liquidity. The rising interest rate environment will likely intensify household and corporate stress, highlighting the need for liquid assets to navigate market volatility. Investors have often underestimated the cost of illiquidity, especially when chasing yields in prolonged low-rate environments. The simplest asset, cash, offers almost infinite liquidity and flexibility in such times.
