'Markets so on edge for so long' - what KiwiSaver managers want you to know about AI fears

International share markets wobbled at the end of last week on fears about what might lie ahead for investment in AI, but KiwiSaver managers say investors should not panic.

Intel's share price dropped by about 30 percent on Friday, while Alphabet's slid after it posted a disappointing earnings report. The big tech companies have been spending heavily on AI despite investor doubts about when those decisions will pay off.

Kōura founder Rupert Calrony said markets had been nervous for so long that any bad news was magnified.

"Markets have been so on edge for such a long time that they take any bad news as catastrophic news and that's what we saw on Friday. I think it's really interesting when we also point out that people are concerned around Google and Amazon and the fact that their core businesses are slowing at the same time as their investment in AI is massively ramping up.

"Let's be clear, though. These businesses are slowing, not going backwards, and also, these are still businesses that are growing at 10, 20 percent a year, and these are businesses that are the size of the New Zealand economy, right?

"I find it fascinating that everyone's saying this is the end. ..I'm still a big believer in AI. I'm still a big believer in the AI trade. I also think, with a lot of these global concerns around data centres, it's going to get harder to build data centres, which potentially means that those that have them will do better than expected because they're going to be able to price higher, and also the capex that's been forecast potentially never gets spent because if a state like Texas is now blocking data centres, just imagine what's happening in other places."

He said the key thing for KiwiSaver providers was to make sure that clients did not panic, "or assume this is the start of the end and start that massive switch out, which is my big fear".

Simplicity founder Sam Stubbs told Midday Report that investors should "stick to their knitting" and choose a fund that was right for them in the long term, even if companies failed.

"The fact that you see some of these companies go bust is what I would call capitalism kind of working. It goes up and sometimes it goes down. Sometimes companies go bust. But fundamentally, you've got a very diversified portfolio. The other thing to remember, of course, is that these big tech companies now, yes, they may be heavily invested in AI, but you and I also pay them a lot of money.

"And they really do have very, very strong cash flows. They're very diversified international companies as well. So I'm actually I'm more comfortable when I hear people worrying about these things. Most market crashes get caused by what they call black swan events, things you never expected, like Covid or like the US housing bubble.

"The fact that we're talking about it, worrying about it… I wouldn't say it's encouraging. I'm not going to tell you they're going to go up from here. But I always feel much more comfortable when people are worried about something and starting to do things about it."

He said most KiwiSaver portfolios were very well diversified and most managers had a significant portion invested in New Zealand, which has limited exposure to technology.

"The top 10 tend to be dominated by those tech companies. But they are not in aggregate a huge part of a KiwiSaver portfolio. And also, quite frankly, even if these things did crash… market crashes typically bounce very quickly.

"Because fundamentally, we're human beings. We're hardwired for optimism. Financial markets want to go up. And what typically happens is they go down, people have this thing called loss aversion. They get very scared about losing money. They do nothing. They freeze. And then suddenly, you work out that actually, the reality is not as bad as the emotion indicated.

"So most financial market crashes tend to bounce within one or two years. And it's almost impossible to choose the bottom. I think trying to pick market movements up and down is tantamount to gambling as far as I'm concerned."

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