Key points
• The unveil of DeepSeek’s advanced AI model, claimed to be created at a fraction of the cost of its US counterparts, sent shockwaves through global markets this week. However, questions remain over the credibility of the claims made by its creators. Until these claims are substantiated, the initial impact on the markets will likely reverse, with focus turning back to Fed policy, Trump’s economic measures, and global growth dynamics.
• Nevertheless, the turmoil in the markets on Monday will alert investors to the fragility of the US stock markets, given their high overall valuations, concentration risk, and economic fundamentals that may still deteriorate.
Baseline view
There is a strong case for the market to shrug off its initial concerns over DeepSeek, at least for now. However, this does not take away from the fact that stock markets are still expensive, fragile, and at the risk of a correction from factors such as global monetary and fiscal policy, as well as geopolitical and economic risks.
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