Buckle up for more market volatility

The Saudi Tadawul’s All-Share Index – Tasi – is up around 5 percent in the year to date; the Egyptian market has posted its strongest start to the year since 2012, as my colleague Edmund Bower notes; Dubai’s DFM general index has risen 11 percent and the Abu Dhabi’s ADX General more than 6 percent.

So is all well? Not quite. US markets are more than usually febrile.

In a blog post published at the weekend, research house Citrini posited a scenario – not a prediction – purporting to be written in 2028 which spoke of the sizeable risks AI poses for white-collar employment. Joblessness could rise above 10 percent with concomitant effects on welfare spending and government budget deficits, the authors wrote.

The insight is not startling, albeit concerning. But cue a sell-off in software stocks, in many of the companies mentioned in the scenario, and in the tech-heavy Nasdaq index.

At the same time, shares in venerable tech blue chip IBM fell 13 percent after San Francisco-based AI lab Anthropic said its agentic software can modernise a programming language mainly run on IBM computers.

This is a bad case of David and Goliath. Anthropic was founded only in 2021 yet is throwing doubt on the entire business model of a respected leviathan.

Earlier, the ratings agency Moody’s pointed to an accounting loophole involving leases used in a popular mechanism by AI companies to build data centres. And who is funding the centres? Private credit – shorthand for the credit that banks will not fund because it is too dodgy.

The Moody’s note caused Blue Owl, an asset manager, to announce a permanent halt to redemptions in one of its private credit funds after investors took fright. Halts to redemptions in what are supposed to be liquid funds are never a good sign. Shares in other asset managers have been hit.

Private credit allows lenders and their investors to charge subpar creditors up to 11 percent on a loan while taking a hefty 3 percent in arrangement fees. Jamie Dimon, head of JP Morgan Chase, warned of the risks in this opaque sector last year.

The arguments behind the private credit market are that it is reserved for institutional investors who know what they are doing. Blue Owl says different.

Add the US Supreme Court’s rejection of some – but by no means all – of President Donald Trump’s tariffs and you have a recipe for uncertainty.

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One may dismiss this as the cut and thrust of the markets. Anxieties around valuations of tech stocks and around private credit are nothing new.

But the Vix index, the Chicago Board of Trade’s fear gauge, hit 21 earlier this week – not the highs of last year when Trump announced his first round of tariffs, but nonetheless concerning. The Vix uses options to measure expectations of where the S&P500 will be in 30 days’ time. A reading above 20 is a sign that investors are looking for protection against a market downturn.

At the time of writing, a second US aircraft carrier battle group is in the Mediterranean en route for the Indian Ocean. Talks in Geneva aimed at finding an agreement over Iran’s nuclear programme are due to end on Thursday.

This adds to an air of uncertainty – and likely turbulence in financial markets.

The people who can exploit the ensuing volatility are the banks and hedge fund managers. The rest of us should buckle up.