Analysis: AI Bubble Burst Could Trigger Simultaneous Withdrawal from US Stocks and Treasuries

Odaily News: An analysis by the Bank of England shows that if the artificial intelligence stock bubble bursts, the impact could spread to the UK, affecting stock prices, UK government bond yields, and the corporate credit market. In a blog post, the Bank of England stated that if earnings at major US tech companies fall short of expectations, investors might interpret this as a downgrade in the outlook for US productivity growth, prompting them to withdraw from US assets rather than seek safety in them. This could lead to a weaker dollar and undermine a factor that has historically buffered economies like the UK during periods of financial market stress.

Daniel Ostry and colleagues at the Bank of England's global analysis division wrote: "If expectations that AI will boost productivity fail to materialize, investors could pull out of both US bond and stock markets simultaneously." They noted that "this would stand in stark contrast to typical stress scenarios such as the 2008 global financial crisis," when investors flocked to safe-haven assets and drove the dollar higher. That provided some support to the UK, both by enhancing the competitiveness of UK exports and by increasing the pound value of dollar-denominated holdings. (Jinshi)