Multi-Asset Weekly | Market Divided Amid AI Disruption and Tariff Risks
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Chief Investment Office3 Feb 2025
  • Equities: Global equity markets mixed amid AI disruption fears & expectations of US tariffs
  • Credit: Historical analyses suggest IG bonds perform well under high-rate pause environment
  • FX: Additional tariffs adds to the USD strength narrative
  • The Week Ahead: Keep a lookout for US Change in Nonfarm Payrolls; Singapore Retail Sales
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Equities: Market mixed amid AI fears and tariff threats

Markets mostly lower amid AI competition and tariff threats. Global equity markets finished a volatile week mostly lower, with developed markets declining 0.5% while emerging markets were up 0.3%. A sharp sell-off in technology stocks fuelled the downturn, triggered by the launch of DeepSeek R1, a new open-source large language model from a Chinese developer. DeepSeek R1 reportedly matches the performance of leading Western AI models while requiring significantly less energy and processing power. This reveal sparked market panic as it challenges the prevailing assumption that each new generation of AI models would require exponentially greater processing power, thus bolstering the crucial role of hardware providers like Nvidia.

US equities was also hit by expectations of tariffs from the Trump administration on Mexico and Canada, the US’s top two trading partners. The S&P 500 was down 1% while NASDAQ was down 1.6%. Over in Europe, the European Central Bank (ECB) cut rates by a quarter percent to 2.75%, bolstering investor sentiment, STOXX 600 was up 1.8% for the week. Asia ex-Japan closed the week positive with the HSCEI and Hang Seng up 1.0% and 0.8% respectively.

Topic in focus: Navigating AI Disruption – DeepSeek’s impact and opportunities in US Big Tech. DeepSeek has emerged as a significant challenger to the dominance of OpenAI in the AI sector, offering similar performance with far lower computational costs. DeepSeek’s AI models reportedly required just USD5.6mn and 2.8mn GPU hours for training, a fraction of what competitors like Meta spend on similar models. While these achievements are groundbreaking, skepticism remains about the full scope of these costs, as other factors such as R&D and data acquisition are likely not accounted for. Moreover, DeepSeek faces unique challenges, including government vetting and censorship in China, as well as ongoing issues with service stability, which complicate its path to commercialisation. DeepSeek’s achievements only serve to further the AI narrative; increased spending, a growing addressable market, and innovation will continue to drive growth in the AI space.

US Big Tech still hold a dominant position in AI, supported by their vast resources and advanced infrastructure. We recommend maintaining exposure to US Big Tech, which continues to lead the AI landscape with solid fundamentals and a clear growth trajectory. With strong earnings growth potential in the high teens for 2025 and 2026, these companies are well-positioned to benefit from continued AI demand and innovation. Given the dynamic nature of the AI sector, stay invested with the DBS I.D.E.A. strategy to ensure diversified exposure across secular growth themes.


Figure 1: Robust earnings growth expected for Global and Big Tech

Source: Bloomberg, DBS



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