The biggest threat to global markets is a bubble in artificial intelligence, with investors getting carried away by the AI boom, according to Stefan Bollinger, chief executive of Swiss private bank and wealth manager Julius Baer. He believes the banking system is on much firmer ground.
In an interview with Himadri Buch, Bollinger spoke about where the next financial shock could come from, how wealthy investors are spreading their money across borders, and what he makes of India’s markets.
India: a healthy correction
Bollinger said the fall in Indian equity valuations to 16-16.5 times earnings, from 21-22 times earlier, is a healthy development. He added that India’s growth story remains intact.
Wealthy Indians going global
He said Indian investors have been steadily diversifying. Over the past five years, offshore investments have gone up from 2-5% of their wealth to 15-20%.
Bollinger stressed that every portfolio is built to suit the individual, depending on personal circumstances, appetite for risk, spending needs and how long the money can stay invested.
As investors look beyond the US, he said, several areas are drawing attention. Hedge funds are back in focus. In private equity, Julius Baer is concentrating on firms that can reach particular industries or markets. Private credit remains an interesting asset class. Clients are also buying structured products, which can offer protection against losses or magnified gains.
The US Federal Reserve
Asked about the latest US Federal Reserve decision, Bollinger noted that two members of the rate-setting panel voted for a hike, while everyone else was against it. He said that raising rates just ahead of the US midterm elections would have created a great deal of tension.
He added that a move in December is already fully priced in by markets, since inflation is running very high.
Where the next crisis could come from
Bollinger said the chance of the next crisis starting in the banking sector is incredibly low, describing banks as very safe. He thinks it is more likely to emerge from commitments held off balance sheets, of the kind now seen in the AI ecosystem, where the sums involved are very large.
Pension funds, insurers and rising yields
Asked whether rising bond yields could cause isolated trouble at pension funds, insurers or other companies, as happened with Silicon Valley Bank, he said that was possible. However, he does not see it as a systemic risk.
He pointed to Japan, where the hurdle rate for taking such risks is going up. As a result, he expects some money to flow back into Japan, because its domestic markets have become more attractive. Japanese investors are reconsidering how much they hold overseas as interest rates in their country rise.
What it means
Bollinger’s message is that investors should worry less about the stability of banks and more about the heavy enthusiasm around AI and the hidden obligations that may be building up around it. For India, he sees the cooling of valuations as a sign of health rather than a warning, and he expects the longer-term growth story to hold.
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