On August 19, Gabriela Santos from JPMorgan Asset Management raised an alarm, highlighting that the concentration risk associated with the 'AI factor' has extended beyond the stock market and into the fixed income market. Despite the continued validity of the investment rationale behind the AI supercycle, investors are advised to exercise greater prudence in their investment strategies. Santos underscored the necessity for investors, even those bullish on the AI sector, to tread carefully when building their investment portfolios.
She cited the tech stock correction in July as a cautionary tale, illustrating the dangers of overly concentrated positions. During that month, the Philadelphia Stock Exchange Semiconductor Index took a nosedive, plummeting by 21%—its steepest monthly decline since 2008. The Korea Composite Stock Price Index wasn't far behind, registering a 22% drop.
Santos argued that this market turbulence underscores the significance of managing position sizes judiciously, employing leverage sparingly, and diversifying investments across sectors beyond AI. She further noted that the current investment landscape has grown increasingly intricate, with AI's influence permeating diverse sectors. Consequently, investors can no longer confine their decision-making to conventional risk factors, industries, regions, or asset classes.