The annual Melbourne Foundation for Business and Economics dinner saw executives and fund managers discussing the February reporting season’s dominant themes: artificial intelligence and share price volatility. The rapid advancement of AI within major Australian companies is leading to significant workforce restructuring, as demonstrated by Commonwealth Bank’s retraining program and WiseTech Global’s planned staff reductions. WiseTech Global is a software company, developing and delivering solutions for the logistics industry globally. Their software helps manage the movement of goods and information across borders.
However, the increased volatility in share prices is causing concern. Dramatic swings in response to company results have become commonplace, with a significant proportion of companies experiencing share price movements far exceeding statistical norms. This volatility is attributed to the rise of global algorithmic trading firms and hedge funds that use AI to quickly analyse earnings releases and trade accordingly. These rapid moves are exacerbated by momentum-based trading strategies and the increasing amount of money tied up in passive investment strategies.
ASX-listed companies are adapting by using AI to analyse their media releases and executive communications, ensuring they are interpreted favourably by AI-based analytic platforms. While this is understandable, there are concerns that this focus on short-term market reactions could distract boards from making strategic decisions that create long-term shareholder value. Some fear companies are too focused on short-term gains rather than sustained growth and value creation.
Super funds, like Cbus, are attempting to counteract this trend by allocating capital to long-term, patient investment strategies focused on fundamental value. There is an ongoing debate about whether the current market dynamics are ultimately beneficial or detrimental to the efficient allocation of capital and the long-term health of the Australian economy. ASIC examined public markets last year, but perhaps a deeper investigation is needed to address the impact of algorithmic and high-frequency trading.
