Following Democratic gains in the US midterm elections, some investors have raised questions about Washington’s ability to reach consensus on spending and trade policy.
They are particularly concerned about AI (artificial intelligence) spending, rising US debt and trade policies. They also cautioned against attributing every market movement to the election, noting that broader economic forces, beyond political developments, are at play.
“Some of these concerns were building long before Americans voted. The election makes people look again at what they are paying for, especially in technology. Politics can trigger a reassessment, but it doesn’t solve all the underlying problems,” Rayad Kamal Ayub, managing director of UAE- based Rayad Group, told Khaleej Times.
Stay up to date with the latest news. Follow KT on WhatsApp Channels.
Ayub questioned whether the enormous sums flowing into AI can justify technology valuations.
“I believe AI will change how businesses operate. But that doesn’t mean every AI company deserves an extraordinary valuation. We’ve seen investors get carried away before. The question I keep asking is simple: when does all this spending turn into real profit?,” noted Ayub, drawing a sharp distinction between established technology groups with substantial earnings and heavily financed projects still searching for customers.
“Some companies can fund this investment from their own cash flow. Others are betting on demand that may take years to arrive. If expectations fall, share prices could correct sharply. That isn’t the same as saying the technology has failed,” he added.
Cost of building AI
London based serial investor Bundeep Singh Rangar, for his part, highlighted the cost of building AI infrastructure. “I’m watching how much cash these companies generate after paying for their infrastructure. Data centres, electricity and advanced chips are expensive. If customers don’t spend as quickly as expected, the numbers will have to be revised,” added the founder and CEO of Rangar Capital and Fineqia International.
Another venture capitalist noted the midterm elections have also renewed attention on US government borrowing. A Democrat-controlled Congress could resist parts of President Donald Trump’s legislative programme, but he retains veto powers and substantial executive authority.
Philip F. Ma, managing partner of Opportunity Venture (Asia) Limited, underscored the direction of bond yields would depend on how Washington handles fiscal negotiations.
“If Congress limits spending, investors may expect less government borrowing. That could bring yields down. But if Washington keeps fighting over budgets and debt, investors may eventually demand more interest to lend. Both outcomes are possible,” Ma explained.
Ayub added the Federal Reserve sets policy rates independently, while longer-term Treasury yields also reflect inflation expectations, debt supply and investors’ appetite for risk.
“Higher Treasury yields can raise the cost of funding a factory, buying property or refinancing a business thousands of miles from America. And even if the Fed cuts rates, longer-term borrowing costs don’t always follow,” he continued.
Tariff uncertainty
Tariffs present another difficulty. Congressional opposition would not automatically undo trade measures imposed under existing presidential authorities.
“Imagine signing an 18-month contract for machinery,” Ayub said. “You need to know the tariff, the exchange rate and the interest on your working capital. If those keep changing, you either charge more, hold extra inventory or postpone the order. None of that helps growth.”
He said uncertainty also encourages businesses to reconsider where they manufacture and which currencies they use for settlement.
“Companies are asking whether every contract has to be settled in dollars. Some will diversify because they want less currency risk, not because they are making a political statement,” Ayub continued, noting changes in US interest rates can complicate global monetary conditions.
Defence spending
Defence appropriations are another potential source of disagreement. Congress influences military spending and procurement, while the White House retains important foreign policy and security powers.
“Defence contracts run for years,” Ayub said. “Congress can question spending or change priorities, but programmes don’t simply stop the morning after an election. Companies need to follow the actual budgets, not just the speeches.”
He said maritime security and energy transport are particularly important transmission channels for international businesses, including those exposed to the Strait of Hormuz.
“When insurance rises or ships have to take longer routes, somebody pays. Freight, fuel and financing costs work their way into the price of goods. The commercial consequences can be felt far from the place where the uncertainty began.”
“The US is still central to global capital markets. I wouldn’t make investment decisions on election slogans. Look at cash flow, debt, trade costs and what governments actually do. You can work with difficult rules. What makes business expensive is not knowing which rules will apply next year,” Ayub concluded.
Source: Khaleej Times