Divergence in geopolitics
Elevated geopolitical risk and deglobalisation are the new normal. International conflict, a deterioration in the US/China relationship and growing climate stresses will all contribute to shaping the geopolitical and macroeconomic landscapes. Our Thematic Team expects this to lead policymakers to place a high priority on three different facets of security: national security, economic security and resource security. We think each of these could shape spending decisions, trading relationships and supply chains and should persist across numerous election cycles.
To bolster national security amid competition that will span trade, economic policy, global diplomacy and military policy, we expect to see government spending on defence accelerate, producing a long-term tailwind across both the traditional and emerging defence sectors.
An increased emphasis on conomic security should lead to more promotion and protection of strategic industries via policy measures, export controls and legislative actions, and also nearshoring and the localisation of sectors such as semiconductor technologies and artificial intelligence.
Finally, countries are recognising the importance of stability, independence and resilience in natural resource supply, with both energy and critical minerals a particular area of focus.
Our Thematic Team believes these coming disruptions may offer significant, long-term opportunities to find winners at regional, country, industry and company levels. There are of course risks: a major conflict would likely have unpredictable implications for all capital markets. However, we believe that with proper management, these thematic allocations could provide investors with a more defensive and diversifying allocation within portfolios.
Monthly Market Review — August 2024
A monthly update on equity, fixed income, currency, and commodity markets.
By
Brett Hinds
Jameson Dunn