Trail 223 — Trepid Start

Markets Update by Aashish Singh Business Update by Sylvia Lo

Financial markets are fascinating. They are constantly evolving, they follow no predetermined path and much like humans, their behaviour at times is completely irrational. Every day their movements are thoroughly analysed, yet their next steps are a complete mystery. They follow a random walk and therein lies their beauty. Each week I briefly recap a few stories that captured my interest.

After a cross-asset rally in 2025 where every asset class recorded gains, markets started slowly in 2026. There isn’t much happening to put further wind in the sail of exuberant investors, but also not much to cause panic now. The US attack on Venezuela and capture of its President over the weekend will not affect markets including oil in the short term but adds to the geopolitical instability globally.

The S&P 500 closed a little over a percentage point lower this week as the Santa rally failed to materialise for a 3rd consecutive year. Notably in all 3 years the index had nonetheless registered double digit gains. Treasury yields traded in a narrow band, while the dollar gained slightly. Gold and silver both had sharp drops amidst increased margining requirements and upcoming reweighting of the BCOM index which will require selling of the metals as their share has grown after the extraordinary rally in 2025. Brent slipped back to $60 a barrel.

In terms of outlook, the market sees Fed rates dropping to 3% by end of this year. This along with the strength of the US economy provides some upside to the S&P 500 but doubts over AI earnings materialising as well as unemployment increasing should AI actually deliver will limit further upside. I continue to hold the view that the S&P 500 is near its peak (in DXY terms). While Gold and Silver have some near term pressures, nonetheless over the course of the year should see some significant gains. Oil will languish at these levels and could slip to as low $50 amidst the excess supply globally. Vols are super low and corporate credits too tight. See caution coming back into fashion in 2026.

AI Mishaps Expected In 2026

Investors were rationally exuberant in 2025. US consumers remained remarkably resilient, keeping the world’s largest economy out of recession. The tariff blizzard waxed and waned, eventually settling at levies still compatible with maintaining global growth, albeit at an anaemic level. Central banks around the world eased monetary conditions, helping to slow an increase of government bond yields amid increased sovereign debt supply. The value of global equities set a fresh record. The coming year, though, looks less positive.

BCOM Rebalancing

Gold and silver steadied at the beginning of the year after their best annual performances since 1979 as traders assessed the reweighting of a benchmark commodity index that starts next week.

Cross Asset 2025 Rally

The new year opened much as the last one ended, with markets rising, Wall Street confidence intact and little sign the forces that powered 2025 have run their course. What’s less clear is how long the cross-asset synchrony can last.

In the World of Business

This week, Tesla has lost its position as the world’s top EV maker to China’s BYD, highlighting a major power shift in the global electric vehicle market amid cooling demand and geopolitical tensions.

Kioxia Holdings became the world’s hottest AI-related stock in 2025, soaring 540% as surging demand for memory chips exposed a critical bottleneck in the AI boom.

Meta is acquiring Manus, a $2 billion AI startup with Chinese roots, signalling Silicon Valley’s escalating AI investment and the geopolitical complexities of cross-border tech deals.

New Era in the Global EV Race

Tesla’s two-year decline in deliveries, dropping to 1.6 million units in 2025, marks a rare reversal for the company that once defined the EV revolution. Meanwhile, BYD’s aggressive growth strategy — selling 2.26 million fully electric vehicles — has propelled it to the top spot globally. VYD has structural advantages including cost efficiencies from localized supply chains, broad product portfolios targeting price-sensitive consumers, and strong domestic demand. In contrast, Tesla faces headwinds from expiring subsidies in the U.S., political controversies surrounding Elon Musk, and intensifying price competition, all of which have eroded its growth trajectory and investor confidence.

The implications extend beyond corporate rivalry to global trade and industrial policy. BYD’s dominance reinforces China’s leadership in EV manufacturing, raising alarms in Washington and Brussels over overcapacity and state-backed competition. High tariffs on Chinese EVs in the U.S. limit BYD’s direct penetration, but its rapid expansion into Europe, Southeast Asia, and Latin America signals a broader geopolitical and economic challenge for Western automakers. This realignment suggests that scale, cost control, and diversified markets will be critical to survival in an industry where policy shifts and consumer sentiment can rapidly reshape demand. The EV race is no longer about just about innovation — it’s about navigating a fragmented global market underpinned by political risk and shifting incentives.

The AI Gold Rush’s Unsung Hero

While GPUs dominate headlines, the AI revolution is quietly creating a massive economic opportunity in memory chips — a segment that underpins every data-intensive AI application. Kioxia Holdings, a Tokyo-listed NAND flash manufacturer, saw its shares skyrocket 540% in 2025, outperforming every company in the MSCI World Index. The surge reflects a structural imbalance: hyperscalers like Apple and Microsoft are racing to build AI data centers, driving memory demand beyond supply by roughly 10%. Prices for DRAM jumped 50% quarter-on-quarter, with rush orders costing multiples more, and analysts expect continued inflation across storage components. This shortage is spilling into consumer electronics, raising costs for smartphones, PCs, and gaming devices, signalling broader economic ripple effects.

Kioxia’s meteoric rise underscores a critical lesson: AI’s infrastructure stack extends far beyond computing power. Memory is emerging as a strategic choke point, and companies positioned in this niche could see outsized gains as demand accelerates. However, volatility remains a risk — Kioxia’s 20% single-day drop in November highlights how exuberance can outpace fundamentals. The broader takeaway is clear: as AI reshapes global markets, supply chain constraints in “unsexy” components like storage will influence pricing, profitability, and competitive advantage across tech and consumer sectors. Firms that anticipate these bottlenecks — whether through vertical integration or strategic partnerships — will be better equipped to thrive in the next phase of the AI economy.

Meta’s $2 Billion AI Bet

Meta’s purchase of Manus, a fast-growing AI startup specializing in autonomous digital agents, underscores two critical trends shaping the global tech economy: the race among U.S. giants to dominate AI and the rising scrutiny of Chinese-linked technology firms. Manus, which recently hit a $125 million revenue run rate, will integrate its agent technology into Meta’s ecosystem, powering advanced features across Facebook, Instagram, and WhatsApp. This acquisition follows Meta’s multibillion-dollar investments in AI infrastructure and partnerships, including its Llama language models and strategic stake in Scale AI. For Meta, the deal represents a push to convert heavy capital spending on chips and data centers into consumer-facing products, while also navigating regulatory sensitivities by severing Manus’s ties to Chinese investors.

Economically, this transaction highlights the intensifying competition for AI capabilities and the geopolitical risk premium attached to cross-border tech deals. Meta’s proactive steps to eliminate Chinese ownership and discontinue Manus’s operations in China reflect a broader trend: global AI expansion is increasingly intertwined with national security concerns. For businesses, this signals that future M&A in AI will require not only financial muscle but also strategic compliance with evolving regulatory frameworks. The Manus acquisition is more than a product play — it’s a case study in how innovation, capital allocation, and geopolitics converge in the next phase of the AI economy.

Until next week.