AI Boom: Moving Indices and Forex Markets

The IT and communication services sectors form 74% of the AI index. The two sectors have significantly outperformed the S&P 500 and other sectors on the benchmark index through H1 2024. “AI boom is still in its infancy,” says the Bank of America (BoA). Although investors are impatient to see returns on their GenAI investments, the BoA points out that several use cases may emerge as the technology evolves, as was the case with the internet.

A report from the bank highlights that the technology could yield returns much faster than previous technology disruptions, such as the Internet. The impact of GenAI is forecasted to be evident over the next 5 to 10 years from 2024. The AI boom will drive margin expansion for the semiconductor and software sectors by 4.8% and 5.2%, respectively, by 2029. Plus, it will continue to impact major indices and currency prices. To make the most of such opportunities, you first need to know how AI impacts index and forex trading.

Industries Impacted by AI

Artificial intelligence is set to have a net positive impact on the global economy. According to research by IDC, “In 2030, every dollar spent on AI will generate $4.60 into the global economy.” These include direct, indirect and induced effects of the technology. Indirect effects of the technology will be evident in the metals markets, as the demand for chips surges. The data centre industry will also grow as data crunching capacities for predictive, diagnostic, generative and prescriptive analytics proliferate. AI is also set to drive improvements in supply chains (metal and energy), household incomes and the expansion of businesses adopting AI to drive growth.

Impact of Artificial Intelligence on Currencies and Indices

Here’s how the technology may impact the index and forex markets:

The US

The US leads the technology revolution. Experts at Goldman Sachs Research estimate that AI will increase productivity growth in the country by 1.5 percentage points annually. This will directly support the greenback. AI momentum has supported US indices so far in 2024. On October 22, 2024, the S&P 500 had risen 23.43% year-to-date, riding the AI-stock rally. It hit 47 new highs in the first three quarters of the year. The tech-heavy Nasdaq 100 surged 23.08% year-to-date, thanks to the AI boom. Historically, a double-digit rise in indices through the first half of the year indicates a double-digit surge for the rest of the year.

The EU

Most major developed markets are forecasted to experience an impact of the AI boom like the US. However, given the AI Act, companies in the Eurozone are struggling to build general-purpose (GPAI) capacity since The GPAI model is seen as generating systemic risks. This may slow the growth of AI infrastructure and applications in the region. Although the EU has introduced measures to support AI capacity building for small and medium-sized enterprises, the extent to which they will be able to take advantage of the AI boom remains a point of concern.

The UK

Across the channel from the EU, the IMF expects the UK to take advantage of AI to support economic growth. The $4.5 billion AI market in the UK is forecasted to reach $20 billion by 2030, growing close to 450%. The positive growth outlook for the AI industry in the region indicates a potential surge in the pound sterling.

China

Emerging economies are forecasted to gain between 0.7 to 1.3 percentage points annually from the AI boom. China has massive innovation capacity and is a leading supplier of AI microchips. The country is focused on building data centre capacity, cloud infrastructure and large language models (LLMs) to enhance its computing capacity. About 15% of LLMs (data processing models for generative AI) are developed in China, while the US holds the lion’s share at 73%. The Chinese software market may drive growth, riding the AI boom. The red dragon expects its $6.12 billion investment to reap rewards by supporting the nation’s economic growth and the Chinese yuan.

Japan

AI data centre investment is forecasted to rise by a whopping 60% to 100% annually. This is set to support the growth of countries building their data centre capacities. Japan’s data centre capacity is forecasted to reach 16,900 Megawatt (MW) by the year-end 2024 and 21,500 MW by 2029, with investments from big tech companies, including the Magnificent Seven. This is set to support the Japanese yen.

Taiwan

Taiwan, which is positioning itself as a connectivity hub in Asia and a leader in chip manufacturing, is also set to benefit from the AI boom. The New Taiwan dollar will benefit from foreign investments, supporting the growth of the AI and ICT sectors in the country.

A global rally in the AI sector indicates strong momentum. This is set to drive the demand for precious metals as well. The demand for AI servers and switches will support silver and gold prices. This is because a silver-palladium alloy is used in multi-layer ceramic capacitors (MLCC), a critical component of servers, while gold is used as a bonding wire and for plating printed circuit boards.

To Sum Up

• The AI boom is set to positively impact the developed and emerging markets.
• The US leads the AI surge and will remain the highest beneficiary of the boom.
• US indices have seen record-breaking growth in 2024, driven largely by AI stocks.
• China follows the US in LLM production and leads the world in chip production.
• Japan and Taiwan are expanding their data centre capacity to take advantage of processing demands for GenAI.
• Countries that benefit from AI are likely to find support for their domestic currency.

Disclaimer:

All data, information and materials are published and provided “as is” solely for informational purposes only, and is not intended nor should be considered, in any way, as investment advice, recommendations, and/or suggestions for performing any actions with financial instruments. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation or needs, and hence does not constitute as an advice or a recommendation with respect to any investment product. All investors should seek advice from certified financial advisors based on their unique situation before making any investment decisions in accordance to their personal risk appetite. Blackwell Global endeavours to ensure that the information provided is complete and correct, but make no representation as to the actuality, accuracy or completeness of the information. Information, data and opinions may change without notice and Blackwell Global is not obliged to update on the changes. The opinions and views expressed are solely those of the authors and analysts and do not necessarily represent that of Blackwell Global or its management, shareholders, and affiliates. Any projections or views of the market provided may not prove to be accurate. Past performance is not necessarily an indicative of future performance. Blackwell Global assumes no liability for any loss arising directly or indirectly from use of or reliance on such information here in contained. Reproduction of this information, in whole or in part, is not permitted.