Morgan Stanley stated that the AI boom may change some investors' core investment principles: a 60/40 investment portfolio.
Since the 1950s, this investment strategy of allocating 60% of the portfolio to stocks and 40% to bonds has been touted as the foundation of investment, but in the past few years, it has been increasingly questioned. Now, another driving factor in the debate is constantly expanding, namely artificial intelligence.
This is because this technology can greatly improve productivity, so that the correlation between economic growth and inflation, as well as between stocks and bonds, may be reversed.
Da Mo analyst wrote, "The role of technology diffusion is like a supply shock, promoting growth in the short term and often simultaneously reducing inflation
Therefore, the previous assumptions about how to diversify risk may no longer apply, as the AI boom will bring healthy returns to both stocks and bonds - breaking the traditional negative correlation between the two.
This undermines a key part of the 60/40 strategy. In other words, bonds - like this year's situation - will no longer be as good diversification tools as they have been in the past 30 years, "the analyst wrote
The analysts of Morgan Stanley further explained that the traditional negative correlation between stocks and bonds has reversed, which also appeared during the Internet foam in the 1990s. The explosive growth of information and communication technology has accelerated capital investment, reduced operating costs for enterprises, increased wealth, and led to higher consumption.
Similar to information and communication technology, artificial intelligence, especially generative artificial intelligence, has the potential to widely improve productivity in various industries
After the recent "US debt storm", the debate over the 60/40 investment portfolio has intensified. Previously, the Federal Reserve significantly raised interest rates to curb rising inflation. Therefore, the 60/40 investment portfolio did not achieve astonishing returns.
BlackRock stated that in the new era of high interest rates, the 60/40 investment portfolio has become outdated, and investors must now become more; Quot; Flexible& Quot; And& Quot; Meticulous& Quot;. At the same time, Pioneer Group stated that this strategy is expected to achieve high returns next year.
Da Mo stated that the impact of generative artificial intelligence on economic growth and inflation is only one of the many factors that may affect asset correlation.
Strategists say, "But if we really see this happening, we believe it may mean that long-term investment portfolios will lean more towards stocks rather than bonds, as fixed income becomes a less reliable diversification tool. We believe investors may be looking for new portfolio diversification tools
We may also see a further acceleration of asset allocators investing their funds in private credit. In theory, the correlation between private credit and listed stocks and fixed income is relatively small, "they added.