“The Hidden Risk in Automated Markets: No One Saying ‘Wait’”“AI in Finance: Speed Without Scrutiny?”
“The Hidden Risk in Automated Markets: No One Saying ‘Wait’”“AI in Finance: Speed Without Scrutiny?”
Blog Article
At a recent event hosted by the Asian Institute of Management in Manila, the algorithmic investor and strategist Joseph Plazo voiced concerns that many in his field tend to ignore.
He offered a sober reminder: faster trades are not always wiser ones.
“If you allow a machine to manage your portfolio,” he said, “ensure it reflects your priorities—not just your profit targets.”
???? **The Model Is Perfect. The Context Is Missing.**
Mr. Plazo is not a critic from the fringe. His algorithms are widely used by institutional investors from Europe to East Asia.
But that success, he suggests, carries risk.
“Optimisation without orientation is simply acceleration in an unknown direction.”
He cited a case during the COVID-19 pandemic when a bot under his supervision flagged a short on gold—just before the US Federal Reserve announced an intervention.
“We cancelled the trade. It interpreted data, not decisions.”
???? **Strategic Friction as a Form of Risk Management**
Plazo referred to what he terms **“strategic friction”**—the time it takes to think before a trade.
“Frictions allow institutional investors to consider second-order effects.”
He presented a framework his firm uses, called **Conviction Calculus**. It includes three questions:
- Does this trade align with the organisation’s ethical posture?
- Would an experienced fund manager endorse this move?
- Do we have a human at the helm, or merely a dashboard?
???? **Asia’s Automation Drive and Its Oversight Deficit**
Plazo’s comments come at a time of accelerating fintech growth across Asia. From Singapore to Seoul, AI-led investing is seen as both policy strategy and capital advantage.
But as Mr. Plazo points out:
“Governance is lagging behind growth.”
In 2024, two hedge funds in Hong Kong lost billions after AI models failed to factor in geopolitical risk—a result of logic check here executed too quickly, and too narrowly.
“The outcome was rational—and disastrous.”
???? **Contextual Intelligence May Be the Next Frontier**
Plazo remains bullish on AI’s potential—but not its current limitations.
His firm is building what he describes as **“narrative-integrated AI”**—systems that account for macro context, cultural tone, and regulatory environment, not just price and volume.
“The next phase of AI must engage with uncertainty, not ignore it.”
Investors from Tokyo and Jakarta reportedly expressed interest in these models after the speech. One regional fund manager noted:
“This is the first practical answer to AI’s ethical vacuum we’ve seen in Asia.”
???? **What Happens When the Machine Is Always Right—But Still Wrong?**
Plazo ended with a line that encapsulated his thesis:
“The next financial crisis will not be triggered by emotion—but by perfect logic, executed too quickly, and left unquestioned.”
For investors and policymakers alike, the message was clear: AI is here to stay. But leadership cannot be automated.