- AI boom or speculative bubble?
- Does the US still rule the world?
- Do government debt levels pose issues ahead?
Dynamic Planner, the UK’s leading digital advice platform has shared key discussion points from a joint investment outlook between Royal London Asset Management’s (RLAM) Trevor Greetham, Head of Multi Asset and Abhi Chatterjee, Chief Investment Strategist, Dynamic Planner.
Interviewed for Dynamic Planner’s Connected podcast, they set out the growing influence of China and India playing a much larger role on the world’s stage, the AI bubble not yet being at its peak, the dramatic shift in the dynamics of bond markets, and the noise surrounding the business cycle:
Is it clear where are we in the business cycle despite the noise?
Trevor Greetham, Head of Multi Asset, RLAM said: “We are seeing some Central Bank rate cuts and our growth indicators point upwards, but doubt about the US labour market, means the Federal Bank will most likely still cut rates. Our inflation indicators are pointing downwards, but we believe the tariff feed through in the US could be inflationary. If the business cycle progresses in line with historical patterns, I would not be surprised if the Federal Bank hiked rates next year. The biggest threat to markets could ultimately be from higher interest rates and things being too good, rather than too bad.”
Abhi Chatterjee, Chief Investment Strategist said: “I believe we are on a rate cutting trajectory but the pace will be slow and measured, at least in the UK we know it will be. In the US, the dynamic will change depending on who comes on the board of the Federal Bank.
“We have seen a big divergent dollar dropping, while rates stay the same, so markets are anticipating a weakness in the US economy which has been glossed over because of growth. I believe we will bumble along in terms of growth despite the noise around tariffs impacting supply chains. Inflation will prove resilient for longer than we’ve seen before. Any rate hikes could really put the cat amongst the pigeons were it to happen and could mean the so-called AI bubble bursting, and happening faster.”
AI boom or bubble?
Abhi Chatterjee, Chief Investment Strategist, Dynamic Planner said: “It’s clear that AI is massively transformational as a technological benefit. The worry, however, is the timeline, because the moment the transformation happens, it will become more apparent in industries other than in technology itself. As a result we will see many industries become more profitable including banks and utilities.
“Looking specifically at the S&P 500, where seven stocks account for 33% of the market capitalisation, there is a massive disconnect, and if it wobbles there will be a sharp pullback. The problem has been exacerbated by the drama of passive money going in. It’s clear there is a fear of missing out, and people are willing it to go further.”
Trevor Greetham, Head of Multi Asset, RLAM said: “Almost all waves of new innovation, from the steam train to the internet, have involved speculative bubbles, even though they were bona fide, fantastic new inventions that boosted human productivity. There’s no doubt AI is boosting productivity too, but in the short-term markets can get overblown. When the dotcom bubble burst, the internet was not un-invented, but there was a period in broad US equities where a lot of money was lost over the 2000-2003 bear market. On that basis, you can recognise the economic importance of AI, while at the same time acknowledging there are areas of excess.
“I don’t believe we are at the peak of this bubble yet with interest rates going down and, compared to the 1990’s tech bubble, it feels like more of a US than a global issue. My strategic medium term view is cautious on valuation grounds but my tactical view is still positive. For investors, as long as you have broad diversification alongside US equities, there is a degree of protection.”
Does the US still rule the world?
Trevor Greetham, Head of Multi Asset, RLAM said: “Based on the Shiller measure, America’s stock market is on 40 times earnings. The UK is on 20 – in effect the FTSE is buy-one-get-one-free, and Europe is similarly good value. History suggests the US is probably going to underperform on a long-term basis from here.
“The dollar is challenged by some of the policy under the second Trump administration, such as the tariffs, as well as unpredictable policy announcements. There is also the suggestion that foreign reserves in America from foreign central banks aren’t safe, which has been driving gold higher.”
Abhi Chatterjee, Chief Investment Strategist, Dynamic Planner said: “India and China account for a third of the population of the world. For both economies, saving is a competitive national pastime, they are keen to invest and they can consume in huge amounts: they can consume everything they manufacturer as well as what comes in. The consumer power governing the economics of the world is shifting from the US to these growing and increasingly affluent populations.
“It’s apparent that China has deliberately walked away from the close alignment it had with the US. You can see that with the investments made in technology and the free energy for cheap usage and data centres, that they are really focusing on growing the service technology sector. The dynamic of emerging market debt is changing too. There are now more issuances in local currency than in dollars. Countries such as China and India want to make their currency stronger. The result is a decorrelation in markets.”
Are government debt levels going to cause problems in 2026?
Abhi Chatterjee, Chief Investment Strategist, Dynamic Planner said: “The question of the moment from markets is: why I would pay more for a bond issued by a company holding $80bn on its balance sheet, than a government that has overborrowed by 124%? It’s a question that irritates bond purists but it has come about because there is no credit risk difference. The bond investor is a brutal one and given the high levels of debt we are cautious.
“What’s interesting is we’ve seen spreads collapse for a long time. However, if we break that down and look at corporate yields, they have not linked. They are at the same levels they have been since 2022. It’s the government yields that have pushed up which has caused the compression. On that basis the corporate bond market is much more stable than the government bond market.”
Trevor Greetham, Head of Multi Asset, RLAM said: “At the moment, most companies are issuing debt in their home governments’ currencies. As governments control the currencies, they can, to a certain extent manage inflation, credit stress and the economy through monetary policy. The question is whether at whether at some point companies start issuing in crypto, the result being then that governments have less control over. We are not there yet but there could be a real decoupling if and when that does happen.
“While I’m strategically cautious and tactically positive on the US equity market, for bond markets, I’m the opposite – tactically cautious but strategically positive on value grounds. Bonds are offering a nice, positive, real yield, and as a result we stepped up our strategic exposure from a very low duration stance pre 2022. That said, it doesn’t feel that we’re in the stage of the cycle where yields will drop a lot.
If you look around the world for asset classes that are fair value or cheap, then UK equities, global government bonds generally and UK commercial property are neutral or cheap. Corporate debt and equities, particularly in the US, are super expensive. A portfolio should reflect this.”
To hear more from Trevor Greetham, RLAM’s Head of Multi Asset and Abhi Chatterjee, Dynamic Planner’s Chief Investment Strategist watch Connected from Tuesday 2nd December 2025.
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