What happened in the markets last month
Mixed economic data moved the markets in January. After a blowout US jobs report, traders slashed their rate cut expectations for 2025, which led to a selloff in stocks, while the US-Dollar and US Treasury yields rose sharply. Equity markets rebounded, though, after US Consumer prices rose by less than forecast, and saw further tailwinds as Donald Trump did not impose a new round of tariffs on his first day in the office. The S&P 500 hit new record highs, and oil prices sank after Trump stated that he would ask Saudi Arabia and other OPEC nations to lower prices. The US Central Bank FED kept interest rates unchanged, as expected. On the last day of the month, President Trump reiterated his plan to impose 25% tariffs on Mexico and Canada while also threatening an additional 10% tariff on goods from China.
Economic growth disappointed all across the Eurozone in Q4 last year, and the International Monetary Fund IMF slashed the 2025 Eurozone growth forecast to 1% from 1.2% (while it increased the forecast for growth in the USA from 2.5% to 2.7%). Purchasing Manager Indices, though, pointed to improving business conditions in early 2025. The European Central Bank cut its policy rate by 25 basis points, as expected, and European shares hit record highs, partly due to the fact that Mr. Trump had not imposed tariffs (yet?).
Chinese shares tumbled over 20% from recent highs and hit a bear market as investors remained fearful of an anticipated hike in US tariffs, only to rebound when this did not materialize straight away. Chinese bond yields hit record lows, and the Yuan weakened to the lowest level in 16 months versus the US-Dollar. The Bank of Japan raised its key policy rate to the highest level in 17 years and expressed a more bullish view on inflation. Gold traded above $ 2800 for the first time ever.
What happened in the fund in the last month
Nvidia lost close to $ 600 billion in market cap on 27 January, the biggest drop for any company on a single day in U.S. history, and the Philadelphia Semiconductor Index SOX fell more than 8% because of a Chinese company, founded only 2 years ago, with 200 employees.
DeepSeek is a Chinese artificial intelligence company, headquartered in Hangzhou, China, which develops open-source AI models, including large language models and visual language models, designed to be efficient and cost-effective. The company aims to handle multiple tasks simultaneously without slowing down, providing low-cost AI solutions. DeepSeek’s model apparently performed at similar levels to OpenAI’s o1 reasoning model on some benchmarks (math, coding) but was trained at only a fraction of the cost, and its mobile app surged to the top of Apple’s download charts in the US. Stocks with exposure to Artificial Intelligence sold off at the start of this week as DeepSeek prices their models anywhere from 20x to 40x cheaper than equivalent models from OpenAI.
There are many questions about DeepSeek though. The company is accused of theft by OpenAI, accused of breaking US export restrictions when they bought Nvidia chips (probably via Singapore), and most experts doubt the low costs cited. In addition to that, Deepseek is censored by the Chinese government, has insufficient privacy policies, and all data is stored in China. In a recent test, its results were incorrect in 83% of all cases, and to make things worse, the company got hacked and more than 1 million data points of users have been exposed. Whenever we listen to companies to talking about AI, the key concerns mentioned are trust, security and data quality, and it is fair to say that probably not many companies would feel comfortable having their data stored in China.
In these discussions, an interestin theory was cited very often: Jevons Paradox.
William Stanley Jevons observed this phenomenon in the 19th century with the use of coal in England. As steam engine technology improved, engines became more efficient at using coal. One might expect that this had led to a decrease in coal consumption. However, the opposite happened. The increased efficiency made coal a more cost-effective energy source, which led to its wider use in various industries. As a result, the overall consumption of coal increased significantly. This example is what led Jevons to formulate his paradox, highlighting how improvements in efficiency can sometimes lead to increased resource use.
So, even if we assume that Deepseek’s claims are true, it may be positive for the whole AI space, as lower costs will accelerate AI adoption everywhere. Currently, AI is a very small part of the overall semiconductor market, and represents maybe about 20% of the category ‘Servers, Datacenters & Storage’. Only a limited number of very expensive, high performance chips are being bought by a few hyperscalers (large cloud service providers) like for example Microsoft. As the cost for these chips is high, it is economically not viable to put them into devices like smartphones or PCs. If costs fall dramatically, there could be millions of additional chips for new applications in smartphones, PCs, cars, robotics etc. As can be seen in the chart below, these are significant areas of the global semiconductor market. In this respect, it was interesting to hear from Apple that sales for their newest iphone outperformed in markets where Artificial Intelligence functionalities is already being offered.
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Source: ASML
To produce more chips, more factories will be needed, which would be positive for semiconductor equipment companies like ASML. And this would mean that more data is being collected, which will require more datacenters, which need more energy.
Last but not least, lower costs for AI, and on the back of that a faster adoption of AI, would be very disinflationary. A leading French investment bank for example expects AI to increase global productivity by 1% per year. And this will benefit most companies, globally, and just as one example, SAP recently talked about cost savings of 500 million Euros thanks to AI.
ASML, as one of the most important companies in the global semiconductor supply chain, was among the stocks which crashed due to DeepSeek, but managed to recover some of the losses after the announcement of promising results for the last quarter of 2024. Most importantly, the order intake of more than 7 billion euros was double of what analysts had expected, and makes the outlook for 2025 look conservative. The reason why ASML has not increased it is because of uncertainties regarding China and potential new restrictions from the USA. But after a very disappointing profit warning in October last year, this is an important step to rebuild confidence.
Outlook
There's an old saying on Wall Street: As goes January, so goes the year. The January Barometer, first developed by Stock Trader's Almanac creator Yale Hirsch in the early 1970s, attempted to codify this relationship with data. Dow Jones data going back to 1928 show that when the S&P 500 Index finishes January in the green, it proceeds to keep on climbing 79% of the time. While this seems like a good omen, it has to be noted that since 1926, the 12-months return of the S&P 500 Index has been positive in 69% of the time, with an average gain of 8.4%.
Written on 13 February 2025
On the day of writing this article, MW GESTION ACTIONS EUROPE holds the following quoted securities: :
- ASM International for 6.3% of its outstandings
- Microsoft for3.9% of its outstandings
- Nvidia for 2,9% of its outstandings
- SAP for 4.9% of its outstandings
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