AI has been making waves across industries—and the investment world is no exception. In times of uncertainty and change, many investors are turning towards AI as a means of mitigating risk while gaining potentially lucrative returns.
But can AI truly set investors on a risk-free path to fund deployment? There are risks worth considering before adopting an AI-driven investment approach.
Depth of analysis
How accurately would an AI analyst perform? Would a move to AI-driven financial market analysis make human analytical insights redundant? AI models are able to process vast amounts of data with more efficiency and accuracy, meaning that the potential for better forecasts and outcomes are high.
The open-source nature of many AI products will also make them accessible for all. As an investor, you wouldn’t then have to painstakingly find the right analyst or investment institution to make prudent financial decisions.
AI could even create personalized portfolios for investors based on their risk profile and investment horizon. It can help with portfolio optimization through regular and timely rebalancing. This could make the industry highly competitive, while also improving and polishing the services provide by their human peers.
The UAE has made significant strides in AI with a Council for AI and Blockchain currently progressing in its mandate, and which aims to adopt various AI technologies in government entities, develop AI systems, increase the UAE’s competitiveness in priority sectors through AI-powered customer services, and establishing an effective legislative and regulatory environment.
Objective analysis
Unlike human analysts who may be biased in their assessment of financial markets, AI-powered systems can run more objective market analysis. This helps eliminate any potential for subjectivity and irrational sentiment.
Risk management
AI’s cognitive computing capabilities allow it to manage both structured and unstructured data with ease—a feat that would take an unreasonable amount of time for a person to accomplish.
Thanks to its potent algorithms, AI can analyze the history of risk cases and identify potential future issues before they occur. AI will be an indispensable tool for analyzing real-time activities in any given market. Its predictive capabilities and detailed forecasts - based on multiple variables - are critical for effective investment planning.
Corporate AI
We see companies like Bloomberg and FalconX have launched specific AI tools geared for trading and financial analysis. The BloombergGPT for example integrates open-source AI to offer new ways to use data available within the company’s terminal. FalconX on the other hand is creating a more crypto-focused AI tool- aptly named ‘Satoshi’ - to help investors clean up market data and sift out fake volumes, all of which seems good in theory.
With AI becoming mainstream, the specific implementation of tools such BloombergGPT could gamify financial markets at an unprecedented rate. This will in turn lead to a harsher and even more complicated onset of regulatory pressure, as we will be stuck in the same loop of trying to understand the tech, adopt the tech and get beaten down by regulators.
Downsides
There are ethical considerations to bear in mind when implementing AI models. Questions remain as to how these AI models will be incorporated into trading strategies, and who will be responsible for decisions made by AI during trading, whether investors can trust automated algorithms with their money going into the right investments, especially in ESG investing.
Since AI is powered by data and learning algorithms, both of which continue to evolve over time, it must be monitored consistently to ensure it remains fair and accurate in its output.
Before making a move to AI-driven analysis, it’s also important to consider the associated costs. AI systems can be complex and require significant investment. Therefore, thorough due diligence must be undertaken before investing in such technology.
AI has made significant progress, but the human element is still essential to most jobs including financial market analysis. As AI becomes more accessible, it will increasingly transform the way we work, rather than replacing us entirely.
