“Financial Analysis Based on Artificial Intelligence, Still Short of Human’s Integrity‧Creativity”
[Cheonji-ilbo(H.E. Times)=Song, Tae Bok] Bob Baur (Robert F. Bauer, PhD), Managing Director and Chief Global Economist of Principal Global Investors, has re-visited Seoul in a year. Despite his tight schedule, the newspaper has met Dr. Baur at a hotel in Seoul on June 26th to discuss about the impact of Fourth Revolution on financial industry as well as the outlook of both Global and Asian Economy.
Principal Global Investors (PGI) is an asset manager that provides consistent performance thanks to its high-quality research analysis. Dr. Baur is one of the key members at PGI, a global firm with total AUM of over USD 670 billion, that manages on behalf of institutional and individual clients worldwide. Dr. Baur has shared with our newspaper during last year’s interview that his economic insights were all learned from ‘farming’ which was his first job. He has emphasized during this interview that the Fourth Revolution, which has its basis on artificial intelligence (AI) and big data, is indeed a big trend today. Nevertheless, human’s creativity still remains to be important despite the Fourth Revolution that will take place going forward.
- What will be the impact of the Fourth Revolution to the financial market in the big picture?
The key point of the Fourth Revolution is that the big data is utilized extensively in broad ways. Millions of people can communicate and have transactions lively. With all the data that could be analyzed systematically, investors could then anticipate the investment trend and preference – hence, giving positive effect on the financial market by the use of the Fourth Revolution.
- The analytical quality of the Artificial Intelligence (AI) is on the quick rise. Analysts such as yourselves could be affected as a result of such rapid change in the Fourth Revolution era? Would there be a chance where you could also lose your position as a consequence?
It certainly is possible to provide the directions of allocation after the analysis of future investments by the use of the Artificial Intelligence (AI) based on the big data. However, one thing that is not possible for the AI is to predict the future in terms of creativity based on overall environment – this can only be obtained from a long experience which requires the creativity that the computer’s attribution lacks. Therefore, the needs for financial experts such as myself will always be there in the future. Sure that many internal experts within PGI do utilize the big data of the computers; however, the decisions of future predictions are all made by these experts from much discussion eventually.
- There are concerns over unemployment as the Artificial Intelligence is replacing much job force as a result of the Fourth Revolution.
Humanity has already experienced similar situation in the early 18th century when the first revolution occurred. Although many considered it was the mechanization that has directly led to unemployment, it was in fact a baseless anxiety as more jobs were created as an effect. As a good example, the ATM machines have replaced the positions of the bank tellers – banks were able to create more branches with more capital available. As more branches took place, these banks required more tellers as a result to manage those branches then before. It will be important to find the conjunction in which the robots and humans work together for the maximum effectivity during the Fourth Revolution since humans working with robots will create much more productivity than ever. Although the utilization of robots will substantially rise, they simply can’t completely replace the job functions of humans, and because of this, humans will not be able to lose all of their jobs. In contrast, humans will have more space to concentrate on productivity and effectivity for the better consumptive future that will eventually take place soon.
When computers first appeared, people worried for their jobs. However, that was not the case as more people were required since that has brought demands for new jobs for computer-related works. When computer functions were accustomed, there was a new era for internet search engine. And as internet got widespread, more jobs were created as a result of new demand for internet-related jobs. As you can see from this example of computer’s development – jobs were replaced but at the same time, more jobs were created as a result of such development. Yes the computers could provide more productivity with inexpensive costs, but they can’t replace the creativity of humans after all. Even though the ultra-intelligence and ultra-connectivity of the Fourth Revolution will dominate the era, the Artificial Intelligence and robots simply would not be able to overcome the creativity and originality of human beings.
- Brexit is an issue again. What is your outlook of the Prime Minister Theresa May’s hard Brexit on the global economy?
Great Britain has a medium-sized global economy, and so wouldn’t impact the global economy to an extent. And as there is many political uncertainty currently in the UK, it is an unknown condition that whether or not Prime Minister May will be able to continue her stance on Hard Brexit. As her party lost the majority seats in the last election, Prime Minister May has received certain pressure to resign. Under such circumstances, even if the policy of Brexit continues to follow, I predict it to be a Soft Brexit after all. Prime Minister May has already allowed the EU citizens, who have lived in the UK for 5 years, to remain in the country – we expect to see Prime Minister May to make more practical decisions going forward.
- What is your outlook on the Asian economy as a whole?
Asian economy such as China, Japan and South Korea continues to be in good shape. Asian stock markets will continue to do reasonably well for the time being. The problem is the long period of economic distress such as the US financial crisis for 2 years, 3 years of sovereign crisis in Europe, and the surprise de-valuation in China in 2015. This has led the central banks to keep their interest rates very low. In conclusion, Europe has continued low growth as a result, and people overly concerned with deflation. The extreme reactions by the central banks have resulted in deflation as well as all-time low interest rates, which could potentially lead to more fears of another financial crisis.
Interest rate of 2% is not ‘normal’ for treasury yield. In my personal opinion, it would be in the range of 3.5% to 4%. Having said that, we expect to see the US treasury yield to rise to that level in the future, and it will make it difficult for developing countries like China to handle more ‘normal’ interest rates. So, at some point in time, those rising interest rates will prove a big headwind for global stock markets, including those in Asia.
- South Korea is under a special condition due to a sensitive relationship with its neighbor in the North regarding nuclear testing. What is your view on the market of South Korea?
If the rest of the global market such as the US, Eurozone, Japan and China stays strong and healthy, South Korean economy and market will remain strong as well. The biggest risk to South Korean market is of course the geo-political risk as you’ve mentioned with North Korea.
- What is your personal overweight asset class today?
I still prefer the US stock markets, at least for the next few months. In the long-term, real estate will still be good investments as rents will continue to rise in most places around the world. And as always, I still have a preference for those medium-duration corporate bonds which would provide decent amount of high yield, particularly in this type of low-yielding environment.