From Philip Brown, Head of Research at FIIG Securities
Market sentiment is positive as two companies announce plans to raise AI capital.
There were small moves in bond yields overnight and equity markets saw fairly strong gains, especially in the tech sector. Sentiment was also supported by easing fears of an immediate U.S. strike on Iran, helping oil prices retreat from recent highs while remaining elevated. AI spend continued to take investor focus with Anthropic filing for IPO and Meta launching an equity offering totalling to USD95bn. It has been well noted that the AI-related spend is a huge capital raising task and we have seen companies tap both the debt and equity markets in order to complete their requirements. Market sentiment has been shifting recently as investors question whether these companies will achieve revenues large enough to justify this capex.
Anthropic is the company behind Claude and is one of the leading developers of generative AI models and assistants. In such a highly competitive market, a key consideration is which companies will emerge as long-term leaders and retain meaningful market share, with Anthropic widely viewed as one of the leading contenders. Anthropic’s IPO filing has helped lift sentiment towards AI, although the success of its listing will be a key test of investor appetite for the sector. The company has not disclosed a target valuation, but expectations are between USD1.5-2 trillion which is a considerable valuation for a company that incurred a USD80.7bn net loss for the first half of the year and USD16.3bn in revenue.
Election-heavy fortnight may add to market volatility.
We are currently in a period of multiple country elections that started with Brazil on the weekend and then continues this week with Israel and next week is the US mid-terms. The US mid-term elections will be the clear focus for markets, but the Israel election also has potential geopolitical ramifications, particularly in regards to the conflict in the Middle East. While the U.S. President cannot be ousted in the midterms, the elections can shift the balance of power in the House and Senate, potentially making it more difficult for the administration to pass legislation.
There were big market moves to the surprise win of Luiz Inácio Lula da Silva in the Brazilian election over the weekend, although this is unlikely to affect other markets (ex-Emerging Markets) meaningfully. The move was risk-off with the Brazilian Real fell the most in two decades and stocks were also down significantly, plunging at the open and finishing down 13.9% (IBOVESPA). Markets had largely expected the right-wing candidate to win who was expected to have more conservative fiscal policy than the current President who has been re-elected.
