* AI-driven optimism boosts global equities, tech exports,

growth forecasts

* Asset managers hedge with inflation-linked debt,

volatility derivatives, cutting government bond exposure

* Volatility reflects fears of stagflation, rate hike bets

ending AI boom, investors say

By Naomi Rovnick

LONDON, June 9 (Reuters) - Tumult on world markets in the

past week shows the economic outlook is now on a knife edge,

investors said, with equal odds of an AI boom lifting growth or

oil shocks from the U.S.-Iran war pushing stocks and bonds into

a tailspin.

Global equities hit an all-time peak on June

3, suffered their worst day since October two days later, and

have spent this week reversing course constantly in line with

U.S. President Donald Trump's volatile rhetoric about Iran and

rapidly shifting bets about when the Strait of Hormuz shipping

route might reopen.

"Most investors have been running with the assumption that

within less than three months we reach a reopening of the

strait," Lombard Odier Investment Managers' head of macro and

multi-asset portfolio manager Florian Ielpo said.

"If we move to expecting oil prices of $95 or more for many

more months, that would be a complete change of view and a

stagflation outlook," he added. "The market is walking a narrow

line."

ALL TOGETHER

As interest rate and inflation markets, the oil outlook and

tech investment bets have become more correlated, many assets

that are not obviously linked have moved together in recent

months.

AI-driven optimism has buoyed Wall Street stocks and U.S.

household wealth, boosted official growth forecasts for years to

come, driven breakneck expansion for Asian exporters and lifted

sentiment towards assets across the globe from global bank

shares to Greek debt.

Taiwan expects the best economic growth in 16 years for 2026

thanks to blockbuster semiconductor exports, while global tech

spending has sent imports and exports surging in China, the

world's biggest consumer of commodities.

That's one reason why Britain's FTSE 100 index,

which is stacked with energy producers and miners, has halted

its usual habit of moving inversely to so-called growth stocks

in the tech industry and begun rising alongside them instead.

THE FLIPSIDE

These tech-driven correlations will also make it much harder

to find places to hide if fears about inflation and rate hikes

denting AI spending start driving world markets, investors

warned.

After markets moved to pricing 70% odds of a U.S. rate hike on

Friday, South Korea's won hit 17-year lows and the nation's

tech-heavy share Kospi index hurtled almost 9% lower

within hours.

Alessia Berardi, global head of macro-economics and emerging

markets at the research arm of Amundi, Europe's largest asset

manager, said she still favoured equities, and that markets were

not pricing a long-term Hormuz shutdown.

"But a repricing of (interest rate) policy along with higher

oil prices and shortages will mean stagflationary risks, and

some countries are already getting into a recessionary outlook,"

she cautioned.

Energy supply scares are already biting into economies that are

not twinned with tech like Germany and India.

BUY THE DIP?

Professional asset managers have become accustomed to short-term

geopolitical shocks causing rapid sentiment switches since

Trump's so-called Liberation Day tariff blitz in April 2025

bruised U.S. stocks before retail investors piled into a

stunning recovery trade.

"If you think that the Strait stays closed for a long period

of time and that we will get demand destruction and inflation,

that's the time for stagflation positioning in your portfolio,"

Invesco's global head of research Ben Jones said.

"History has taught us that these geopolitical risks shall

pass and when they do, you tend to get markets rallying very

quickly," he said.

In the days after Trump's tariff announcements sent

shockwaves through world markets, Wall Street's S&P 500 share

index dropped sharply, then executed a fast and ferocious

rebound. Equity and bond prices also swung by the most since the

COVID-19 pandemic.

HEDGING

Michael Nizard, head of multi-asset at Edmond de Rothschild

Asset Management, said he was topping up on derivatives that

profited from stock market volatility.

Other asset managers widely said they were now buying more

insurance products instead of more equities.

Carmignac investment committee member Kevin Thozet said he was

increasing holdings of U.S. inflation-linked debt because market

forecasts for U.S. consumer prices were complacent. Data centre

construction would be capital intensive and drive up energy

prices, he said.

Lombard Odier's Ielpo said he was hedging market bets by holding

onto stocks while cutting back on government debt, which can be

a safe haven but also moves in line with inflation forecasts.

German Bund yields are close to 15-year highs as the

price of the debt has fallen during the Iran war, while 10-year

Japanese yields are touching three-decade highs.

A measure of bond market volatility is around 5% above

its level prior to the start of the war. Stock market volatility

is close to its long-run average, but 35% higher

year-to-date.