LC Ideas: Views & Insights
AI's Haves and Have-Nots and Why the Dollar Isn't Going Anywhere
In a market that is offering no sustainable secular trends, one exception stands out. The artificial intelligence ecosystem, despite elevated valuations, sharp recent corrections, and a bubble that Lighthouse Canton's chief investment officer acknowledges. This remains the only segment of the global economy genuinely insulated from macro crosscurrents.
"There is one part of the global economy which is somewhat independent of the macro, and that's the AI ecosystem," said Sunil Garg Group Head, Research & Investments, and Chief Investment Officer at Lighthouse Canton.
"There are parts of this ecosystem where visibility is a lot higher, and those are where you do want to be positioned long, even now."
For example, a recent example of a high-growth stock falling about 15% from its peak due to market volatility illustrated the kind of dislocation Garg sees as an entry opportunity rather than an exit signal. The volatility itself is the mechanism.
Structured products and derivative overlays allow investors to gain exposure at prices that reflect elevated implied volatility, which he describes as using market dislocations to access long-term winners at levels you want.
On the bubble question, Garg does not equivocate. Yes, there is a bubble. No, it is not about to burst.
"Every bubble follows exactly the same playbook," he said. "You overestimate demand, you therefore underestimate the risk, you over-allocate capital, you therefore over-leverage, and at some point, that leverage tips over. We have just started creating leverage."
The warning is real, but premature. Garg believes the AI ecosystem will eventually experience a correction worse than the dotcom bust but the leverage cycle has barely begun. As of now according to him, “there is still a secular uptrend, it's a volatile trend, but it's an upward trend in the AI ecosystem."
The key to navigating that uptrend is concentrating exposure at the upstream layer - the companies monetising regardless of whether any given application or software platform succeeds.
The have-nots, in his framework, are the pure software-as-a-service plays. Despite the software index holding up relatively well in recent weeks, Garg sees that resilience as a false signal.
"The monetisation of SaaS the way it used to happen is not going to happen," he said. "That is where the bearishness is."
THE DOLLAR HAS NO CREDIBLE HEIR
The debate about dollar decline has intensified as U.S. fiscal dynamics have worsened and geopolitical fragmentation has accelerated. Garg's position is more structurally grounded and contrarian than most dollar bears would like.
The diversification question, he argues, must start with a more basic one: what is your reference currency? For most global investors, the answer is still the dollar. The alternatives examined asset by asset, consistently disappoint.
"Most non-US issuers are issuing in US dollars," Garg noted. "If I wanted to build a meaningful portfolio in Singapore dollars, Sterling or euros, my universe is tiny. It just doesn't allow me to meaningfully diversify."
The equity case for non-dollar markets is equally thin. European equities have underperformed U.S. markets for 25 years. Emerging markets have lagged the S&P 500 for 15 years. The AI ecosystem is overwhelmingly concentrated in the United States, with meaningful representation in only a handful of stocks across China, Japan, and Korea.
Central banks face the same structural constraint in reserve management. Liquidity, sovereign-grade credit quality, and depth of issuance are conditions that only U.S. Treasuries reliably satisfy at scale. The alternatives be it RMB-denominated sovereign paper, European government bonds or emerging market debt fall short on one or more of those dimensions.
For Garg, gold is the only instrument that meaningfully fulfils the diversification role within a currency framework.
"Gold is the clear diversifier in the currency construct," he said.
INDIA - A TACTICAL MARKET, NOT A STRUCTURAL STORY
India continues to command strong attention from global allocators, supported by its demographic tailwinds and sustained GDP expansion. Yet, for some investors, the structural case remains a work in progress.
The key question lies in translation. While the nominal economy has grown at a healthy double-digit pace in recent years, corporate revenue growth has been less consistent. When top-line expansion does not keep pace with broader economic growth, the equity story becomes more nuanced.
“An emerging market investor is a growth tourist,” Garg noted. “Local capital tends to have a home bias, but global investors need clearer evidence of growth to stay committed.”
Even the composition of the Nifty 50 offers a degree of continuity.
“There is a familiarity to that list compared to two decades ago,” he observed, suggesting a slower pace of corporate churn than some might expect.
Against this backdrop, his stance remains measured. “For now, it leans more tactical than structural,” he concluded.
