Global equity markets demonstrated resilience and growth across January despite the challenges of unpredictable policies from President Trump, persistently high inflation, and the prospect of sustained elevated interest rates. Whilst US stocks rose, their return lagged against many other key markets. Tech stocks including NVIDIA fell sharply amid concerns that Chinese DeepSeek’s low-cost AI model could reduce demand for high-end chips and data centres. Tesla was down 20% after missing performance targets with slowing sales and lower margins. Eurozone shares began 2025 on a strong footing, an interesting development following many years of underperformance, with gains overall outpacing many other regions. Valuation dispersions between the US and Europe equity markets are now at their widest level in a very long time and a key reason why the pan-European Stoxx 600 index notched its best outperformance against the S&P 500 for the month in the past decade, rising by 6.3% versus 2.7% of the S&P.
Markets are reshaping: AI disruption, trade tensions, and geopolitical shifts—such as Europe’s increasing defence procurement independence and the German election are beginning to reshape markets. As global competition intensifies across many sectors, market volatility and dispersion will rise. This reinforces the need for active stock selection. Insync remains focused on highly profitable businesses aligned with megatrends, that minimizes economic cycle impacts. We continue to prioritize resilience, innovation, and long-term value creation in the companies we hold. Since 2017, the underlying quality-based portfolio has outperformed in 6 of these 8 years with the funds consistently meeting their rolling 5-year benchmark objectives.
DeepSeek R-1: A Game-Changer?
Relatively unknown Chinese Quant Fund Manager - High Flyer Capital Management’s chatbot, DeepSeek, has shaken the AI industry with its new reasoning model, R-1. This open-source breakthrough delivers ChatGPT-level performance at a purported 90% lower cost, using far fewer and less powerful GPUs. The Impact: A fundamental shift in AI economics—lowering costs, reducing hardware dependency, and making AI more accessible to new entrants. Investors took note, with at one stage $1.2 trillion wiped off U.S. markets, led by Nvidia’s sharp decline. Why This Matters: Historically, AI has been dominated by capital-intensive models requiring massive computational power. DeepSeek’s efficiency-driven approach challenges this, showing that AI can be developed at a lower cost and lower energy consumption. This opens the market to smaller players, accelerates innovation, and could curb the dominance of AI giants like OpenAI, Google, and Meta. |
Three large investment implications arise;
Big Tech’s AI Moat Narrows. Open-source models threaten pricing power and market dominance.
AI Costs Plummet & Adoption Accelerates. Expect new applications and broader AI integration.
Capex Strategy Shift. Firms like Meta and Microsoft will likely double down on efficiency, and may scale back on AI investments.  |
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