Worry More About AI Bubble Burst Than US Recession: Strategies By Investing.com

Investing.com — Investors should be more concerned about the potential bursting of the AI ​​bubble than a looming U.S. or global recession, according to strategists at BCA Research.

The company’s analysis warns that the risks associated with the booming AI sector outweigh those presented by broader economic downturns.

“When bubbles burst, the investment priority is to guard against bursting bubbles, plus the sectors, regions and countries heavily exposed to it,” BCA Research pointed out.

This means that whether or not a recession follows the collapse of the bubble, the focus should be on avoiding the areas most affected by the effects.

On a 6-12 month cyclical horizon, BCA Research says there are several key strategies to mitigate risk.

First, they recommend staying overweight bonds and the Japanese yen (JPY), which are traditionally seen as safer havens during periods of market turbulence.

Instead, investors should underweight the US technology and quasi-tech sectors, which are most closely linked to the AI ​​boom, and reduce exposure to US stocks in a global portfolio.

“Tactically, it is vulnerable to reversal,” the note added, suggesting caution to those involved in the Singapore dollar-US dollar currency pair.

In addition, BCA Research sees a “long versus gold” strategy as a viable countertrend trade, potentially providing a hedge against broader market risks.

The overall message from BCA Research is: “Investors should worry far less about a US or global recession than they should worry about a bubble in anything AI-related “.

As the AI ​​sector continues to attract huge attention and capital, BCA believes the potential for a sharp correction poses a significant threat, making it a critical factor for investors to consider.