On May 23, an AI-generated image, purportedly showing an explosion near the Pentagon, triggered a selloff on Wall Street. The image spread rapidly via “blue tick” accounts on X, which supposedly signify the authenticity of the account holders but not the content of the tweets. Within five minutes, 200 points were taken off the Dow Jones Industrial Average, no thanks to the spectre of yet another 9/11, when the iconic building of the US Department of Defense was hit.
Half a year later, no one is wiser about who created the fake images and why. But it was released around the last-minute game of chicken over the extension of the debt ceiling in Washington, which had already gotten the market nervous. Back then, Moody’s described a potential US default as an event that would “not spare any corner of the global economy”.
Meanwhile, US politicians continue to wrangle. Newly-minted Speaker Mike Johnson’s proposal to continue with the extensions has faced public rejections by his fellow Republicans on the far right and the Democrats. The US looks like it is hurtling towards the fourth government shutdown and possibly another unceremonious eviction of yet another short-lived Speaker.
Sadly, this charade is not fake news, nor AI-generated. Moody’s, the last rating agency to keep the US on “AAA”, has put it on negative credit watch, citing deficits and political polarisation.
Indeed, we are in an increasingly multi-polar world. Physical wars and strategic competition take turns to hog headlines, with ideologues, trade defenders and climate change warriors adding to the volatile mix.
What is surprising is that while there are idiosyncratic issues which disrupt and have impacted specific sectors and businesses, the global economy, which is groaning under the weight of higher inflation and rates, has not imploded. Equity markets are in a healthier shape than the macro environment suggests, and are set to end this year on a par with or better than 2022.
Perhaps investors have tuned out the noise, preferring to focus on ways forward instead. For short-term traders nimble on the macro, there is money to be made — just do not be caught on the wrong side such as those five minutes of the fake Pentagon picture. Irrespective of how many rockets Hezbollah is firing into Israel, markets will react to triggers and adjust to the news, and then cooler heads will eventually prevail and fall back on real numbers to anchor themselves.
In tech we trust?
As we embrace the technological potential of generative AI and its applications to advance our civilisation as well as boost corporate profits as markets hope, I cannot help but be a tad pessimistic about the abuses and unintended consequences.
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The increasing prevalence of deep fakes has a much more nefarious outcome. It can undermine and destroy what is left of the trust we may still have in institutions of state, leaders and “experts” when they go viral on TikTok saying outrageous things. It could give plausible deniability to populists like Donald Trump, who will simply claim what he was recorded as saying was a “fake, deep fake”, such as the Access Hollywood tape.
Recently, I received an email with a clickbait headline saying “Lee Hsien Loong’s controversial interview will forever change the way you see him”, alleging that he “didn’t know the camera was still rolling and dropped a ‘bomb’ on a ‘live’ TV set” and that the “Bank of Singapore is suing him and the producers are trying to take action. Is this the end of his career?”. I am convinced that clicking on the link will undoubtedly unleash some malware or at the very least stream some very good deep fake messages from him — much like Joe Biden purportedly calling for an open mobilisation and volunteers to fight in Israel.
This month, as AI was a key topic in all manner of conferences from the Singapore FinTech Festival to Alliance for Good’s Business and Philanthropy Conference, it is worth bearing these thoughts in mind. Our sceptical radar increasingly has to go up for both investing ideas and news. Microsoft’s Open AI might have the starting gun advantage, but China’s Baidu is making inroads too. Of note too is Lee Kai Fu-led Sinovation Venture’s 01.AI, an eight-month-young open-source foundational large language model start-up, which offers a unique English and Chinese system, bridging East and West potentially. Following the latest funding round that included Alibaba’s cloud unit, it has hit a valuation of more than US$1 billion ($1.36 billion).
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However, how these innovations can be monetised remains to be seen. As we fear being left behind on this investment theme, it is hard to sort the wheat from the chaff for pure AI tech companies. It is a tad easier to imagine applications to improve platform algorithms and model chatbots, reduce the cost of servicing consumers with chatbots, or improve data analytics and risk management. For those unsure of paying supercharged tech valuations for the likes of Nvidia, then some scrubbing of large blue-chip companies adopting and extracting these benefits could be safer bets to take.
Disruption aplenty
Perhaps I sound like a Luddite from the early 19th century resisting the inevitable rise of technology. That is not true — even if I never did learn how to program my VCR (video-cassette recorder) to record live TV programmes. However, much like traditionalists who like the mechanics of cranking their car up when something needs to be fixed, versus the failure of electronics that automatically resulted in your car going to the workshop, the dependence on tech has larger implications beyond reduced brain capacity to remember telephone numbers, now that they are stored in the mobile phone.
Last week saw the mayhem that followed a ransomware attack on ICBC on the US Treasury market. LockBit, a group of cyber privateers behind the attack and others including the Royal Mail, disrupted the trading and paralysed settlement of the US$25 trillion worth of US Treasuries on behalf of market participants including hedge funds and banks. Nov 9’s selloff in long-dated Treasuries was attributed allegedly to this, as well as multiple extensions to the real-time payments systems Fedwire operated by the Fed. It could have been a lot worse. A crinkle in the financial system could have a knock-on systemic impact if funds do not flow as expected or if delays are prolonged or simply because a loan rollover or structured product is “off-priced”.
Port operator DP World, citing a cyberattack, shut down its operations in Sydney, Melbourne, Brisbane and Fremantle, and declared that cargo may be stranded for days, as containers piled up on the docks. Fortunately, it has since been privatised from its Nasdaq Dubai listing in 2020 and is owned by the Dubai Government. Apart from potential consumer delays for Christmas shopping and hopefully not too many essential supplies impacted, there is no stock price reaction to make continuous wire headlines.
On Nov 8, Singapore Telecommunications Z74 ’ (Singtel) Australian unit Optus suffered a widespread outage because of a botched software upgrade, promptly sending the stock down more than 5%. The following day, Singtel reported a sterling set of results for 1HFY2024 ended September and raised its dividends. It is aiming for a 15% reduction in core costs while also stepping up its strategic partnership with KKR’s Asean data centre business. Unfortunately, the market chose to pay more attention to the possible regulatory and consumer repercussions instead. Singtel’s share price gave up the slight post-earnings gains by the end of the week, taking the Straits Times Index (STI), which was heading towards 3,200 points, back towards 3,100 instead. Investors who bought into the selloff have a 5.2 cents interim dividend to look forward to on Dec 8.
Thanksgiving turkeys
Likewise, the sterling earnings for 3QFY2023 ended September by Oversea-Chinese Banking Corp and DBS Group Holdings, up 21% and 17% respectively, failed to lift the overall market. Unlike US CEOs, our local ones prefer to be more risk-averse and conservative with guidance, and by managing expectations, they have a better chance of outperforming the headlines. Never mind that CEOs of STI bellwethers generally do have a reasonable share-based component as part of their package. Perhaps it is just the culture to be conservative here.
Perhaps that may also explain in part the relatively high forward P/E of Estée Lauder at 39x, even after losing more than half of its stock price year-to-date on Chinese consumer hopes that have yet to materialise. Diageo announced it had an inventory problem in Latin America last week and promptly saw its share price drop 15%, but still trades at a forward 18.5x P/E. The slowing high-end Western consumer markets and spluttering Chinese ones were highlighted in this column in August and October after my Shanghai and Paris visits. Now as numbers show up and while stock prices have eased, Western investors (and Singaporeans who pay more investing overseas), seem willing to keep up hopes for 2024.
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In fairness, Sembcorp Industries U96 ’ announcement of its five-year $14 billion investment across renewable energy solutions did see it pop 7.5% back up above $5 on the day. However, that takes it only to a trailing P/E of around 10x, which leaves it with room for further re-rating to catch up with global peers.
Genting Singapore, which saw a 59% rise in profits for 3QFY2023 ended September, being a beneficiary of recovery tourism that keeps its valuation in the mid-to-high teens, appears to have a clearer growth picture. Could it climb back above $1 and outperform the STI?
Singapore Airlines’ (SIA) record-breaking results for 1HFY2024 ended September saw profits rise 55% y-o-y to $1.44 billion, as it continues to build and restore North Asian capacity. The adage has indeed applied that what did not kill it (in this case, the pandemic) has made our national carrier stronger. Interestingly, a slew of analysts had turned negative since SIA’s controlling shareholder Temasek Holdings sold 1.85% in late June at around $7.20, prompting some analysts to favour Cathay Pacific instead for its late and still tentative recovery. Meanwhile, SIA shareholders have a 10-cent dividend to look forward to.
As I continue my travels next to Jakarta and Bangkok, I see full cabins, highly motivated crew delivering great service, and energy prices ticking down. Perhaps 2024 may be a great way to fly, should travel and freight demand, coupled with good management, eventually force a re-think by the analysts who cover the stock. Shutting out the turbulence around me with ear plugs and eyeshades, I will take comfort in the numbers, even while AI prompts me with a host of offers and reminds me of unfinished travel searches.
Chew Sutat retired from Singapore Exchange S68 after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange, and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
