<\/p>\n
Size matters \u2013 in artificial intelligence (AI), markets, and weather patterns.<\/p>\n
The following visuals aim to highlight things happening right now that may be impactful to markets and, ultimately, your investments in them.\u00a0At the very least, these are fascinating, large trends.<\/p>\n
Read:<\/p>\n
Preparing Africa\u2019s data centres for the demands of autonomous AI
\nGiant data centres get the first green light from Cape Town tribunal<\/p>\n
The Magnificent 7 \u2013\u00a0Alphabet, Amazon, Apple, Tesla, Meta Platforms, Microsoft, and\u00a0Nvidia \u2013 have\u00a0spent vast amounts of AI.<\/p>\n
In aggregate, they have spent almost three times the quantum of our local annual economy.<\/p>\n
Magnificent\u00a07 AI spending vs SA nominal GDP<\/p>\n
Source: Gemini-pulled data, with analyst workings and graphing.<\/p>\n
The size of spend has hit almost every corner of the world, from semiconductors and raw materials to Asian markets, and yet most of these data centres are in the US.<\/p>\n
Thus, what no one is talking about is how this AI spending has become so large that its unproven monetisation is a growing risk to the entire US economy.<\/p>\n
A collapse in data centre spending could drag the US into a recession, and simultaneously collapse the South Korean market \u2026<\/p>\n
Size matters, especially where it builds growing concentration.<\/p>\n
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CONTINUE READING BELOW<\/p>\n
The JSE<\/p>\n
A similar concentration risk that is closer to home is on our own JSE.<\/p>\n
The following chart shows that the number of companies listed on the JSE has steadily declined for years, but the market cap of the entire market has steadily risen.<\/p>\n
Number of JSE listings vs aggregate market cap over time<\/p>\n
Source: Gemini-pulled data, with analyst workings and graphing.<\/p>\n
In other words, more and more of the JSE\u2019s \u2018performance\u2019 is being dictated by fewer and fewer, larger and larger stocks.<\/p>\n
What if something goes really wrong with one or more of them?<\/p>\n
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CONTINUE READING BELOW<\/p>\n
(Isn\u2019t Tencent spending more and more on AI? What if Capitec\u2019s unsecured loan book blows up? What if the gold price collapses? Or the platinum price? All unlikely, but none of them impossible.)<\/p>\n
This one is a risk for index investors, but it is by no means unique to our market.<\/p>\n
The Magnificent 7\u00a0in the first chart above currently make up about a third of the S&P 500 Index. The other 493 stocks make up only two-thirds of the same index. A decade ago, the Magnificent 7 only made up 10-12% of the same index.<\/p>\n
El Ni\u00f1o<\/p>\n
Finally, do you remember the term El Ni\u00f1o? Some years back, you could not glance at the news without seeing headlines about El Ni\u00f1o and the drought it was causing in South Africa.<\/p>\n
Just to remind you, El Ni\u00f1o is a global climate phenomenon whereby the unusual warming of surface waters occurs in the eastern and central tropical Pacific Ocean.<\/p>\n
Read:<\/p>\n
How an El Ni\u00f1o becomes a super El Ni\u00f1o
\nWill El Ni\u00f1o drought hit food prices in South Africa?<\/p>\n
This significant shift in ocean temperatures disrupts normal atmospheric circulation, often triggering heavy rainfall in certain regions (not ours!) while causing severe droughts in others (such as South Africa).<\/p>\n
SA\u2019s annual rainfall trend vsEl Ni\u00f1o southern oscillation phase<\/p>\n
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CONTINUE READING BELOW<\/p>\n
Source: Gemini-pulled data, with analyst workings and graphing.<\/p>\n
Historically, South Africa tends to be drier during El Ni\u00f1o periods. Importantly, the current period increasingly points to a (very) strong El Ni\u00f1o that is building.<\/p>\n
So the odds of a severe drought hitting South Africa (and Australia) are steadily climbing.<\/p>\n
This also means there is a rising risk of destructive flooding in places like Peru, Ecuador, Kenya, Somalia, southern California (how many data centres are there?), Florida (or here?), and southeastern South America.<\/p>\n
All of the above trends are big and are playing out in real time.<\/p>\n
All of them can materially impact your investments in a myriad of ways. And all of them are currently under-broadcast in many media sources.<\/p>\n
* Keith McLachlan is CEO of Element Investment Managers.\u00a0<\/p>\n
#Size #matters #growing #risks #concentration<\/p>\n","protected":false},"excerpt":{"rendered":"
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