Investment market volatility ‘here to stay’ unless global recession strikes: analyst

Wealthy investors should be ready for higher volatility “for years” as uncertainties around artificial intelligence (AI) development and geopolitical risks are set to persist, according to a major private bank.

In the past few years, asset prices underwent several roller coaster rides, from US Liberation Day last year to the sell-off of semiconductor shares and US Treasury in recent months.

But volatility came after changes to the market’s structure “over the decades” and was expected to be “here to stay”, said Julia Wang, North Asia chief investment officer of Nomura International Wealth Management, in an interview with the South China Morning Post.

“(Periodic high volatility) is already a result of structure changes to the market, so it’s unlikely to change, unless we have a global recession,” said Wang, who joined the international wealth management arm of Japan’s largest investment banking and brokerage firm in November last year, to advise the offshore investments of clients with at least US$20 million of potential investable surplus.

While Wang reaffirmed Nomura’s positive outlook on AI and the global economy, AI was one of the key pushes behind the ups and downs.

She explained that expectations for outperforming gains from the future productivity driver resulted in crowded trading and leverage, which usually would be followed by market sell-offs.

Semiconductor shares could be a good example. After hitting a record high in late June, the memory chip-heavy Korea Composite Stock Price Index plunged 22 per cent last month, sending a Hong Kong-listed SK Hynix-leveraged exchange-traded fund to dive 71 per cent over the month.