How AI boom is obscuring the big investment opportunity in commodities

A cursory glance at the performance of global stock markets this year suggests exposure to the boom in artificial intelligence (AI) is the overriding determinant of returns. Technology-heavy equity markets, especially those with a high concentration of leading semiconductor and tech hardware firms, have performed spectacularly.

South Korea and Taiwan, major semiconductor hubs, are the poster children for the AI trade. The global chip shortage has led to a dramatic increase in the earnings and valuations of a handful of chipmakers, causing the stock markets of South Korea and Taiwan to rise more than 90 per cent and 50 per cent respectively this year. Taiwan’s equity market is now the world’s fifth-largest, having overtaken India this month, according to Bloomberg data.

The findings of Bank of America’s latest global fund manager survey on May 19 showed that overweight positions in global semiconductor companies and the “Magnificent Seven” group of US tech giants were the most popular trades in markets.

However, the energy shock triggered by the US-Israeli war against Iran has shone a new light on global markets. Even before the crisis erupted, investors were starting to favour asset-heavy, real-economy-focused companies with durable business models, partly because of fears about the disruptive forces unleashed by AI.

Examples of Halo companies include supermarket chains and insurance firms, yet the industry where the barriers to entry are the highest and which is among the most capital-intensive is commodities. The energy shock has underscored the importance of supply chain security and resilience. Shortages of energy and industrial inputs, which are most acute in countries that rely heavily on imports from the Middle East, have put a premium on physical assets from natural resources.