- Geopolitical Strategist
Singapore, Intermediary
Change
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There’s a structural reason why the world feels so adrift right now. We’re in the throes of a transition from one global geopolitical cycle to another marked by turbulence and uncertainty. While investor anxiety is valid, structural shifts in geopolitics like this come around once per century, bringing with them not only risks, but also opportunities.
Setting the stage
Global instability is higher than it’s been in recent memory. There are more than 60 active conflicts globally — the highest level since WWII and twice as many as we saw five years ago. Add to this the stress of climate change and it’s a proverbial perfect storm. Complicating things further is the US administration, which overturned more than 80 years of foreign policy in its first few months, introducing trade disruptions, shaking up global alliances, and greatly altering US spending to align with “America-first” priorities. As a result, a new policy toolbox is emerging among leaders worldwide to myriad macro and market implications.
There’s a human impact we’d be remiss to ignore, as one in eight people worldwide are exposed to conflict, though for the purposes of this piece I’ll be focusing on five ways today’s geopolitical turbulence affects investors:
1. Great-power politics
The world’s two largest economies, the US and China, have long been competing for global dominance. This isn’t likely to change any time soon, and it’s arguably the most consequential issue facing many economies worldwide. Each of these great powers is striving to beat the other in the race for technological superiority — a fire only fueled by the meteoric rise of AI. This technology “cold war” is only likely to accelerate going forward, and could, of course, take on a military dimension.
What does this mean for investors? As these two nations dial up protection and promotion of strategic sectors, there are risks associated with structural trade friction (we saw this earlier this year when the US fired the first shots in global trade war). There are also opportunities among nascent AI companies, manufacturers in this supply chain, and space-based capabilities, to name a few examples.
2. Climate change as a matter of national security
While there is ample discourse surrounding climate change, it’s not widely discussed in the context of national security — in my view, the most underappreciated aspect of this dialogue. Equatorial and tropical areas, many of which are already geopolitical hotspots, could see catastrophic impacts in years to come as the scale and frequency of natural disasters increase. This is a national security concern because there’s likely to be resultant food and water scarcity in these regions, prompting resource wars and climate-induced migration. These dynamics could trigger failed states, social unrest, and rising extremism.
What does this mean for investors? The realization of these climate risks will force governments worldwide, however reluctant, to adapt. This suggests investment opportunity in climate-resilience technology, infrastructure, and related companies. Exposure to decarbonization themes and green efforts could benefit investment portfolios in the long term.
3. Defense at (almost) any cost
Global military spending stands at a record high following 10 consecutive years of increases. A few broad reasons for this uptick include great-power threats from China and Russia, loss of confidence in the US security umbrella, and growing demand for new and effective defense technologies.
Ukraine, which has been at war with Russia since 2022, has served as a laboratory for future warfare, illustrating early examples of applications of space-related technology and AI, as well as new uses of drones and robotics. Conflicts between Israel and Palestine and the US and Iran offer additional lessons.
What does this mean for investors? The semiconductor industry, which powers many current and future defense technologies, including all things AI, will only become more important over time. Other sectors of paramount importance to defense capabilities include critical minerals/rare earths, renewable-energy and space-based technology, biotech, communications, robotics/automation, and more. National security applications will drive demand for innovation in these sectors for years to come, suggesting opportunity for investors.
4. Centrality of AI
When we talk about AI, it’s usually in the context of private-sector productivity. We don’t talk nearly enough about the role of AI in national security, even though it’s been a key military input for years. In my view, it’s impossible to overstate this connection. AI is at the heart of analytical, predictive, and operational military applications that determine missile targeting, battlefield deployments, and weapons systems, to name a few use cases.
What does this mean for investors? With the stakes and demand for AI so high, the structural tailwinds for this sector are many. Investors could benefit from allocations to companies at various levels of the AI supply chain on both the hardware and software side. This could include (but isn’t limited to) data centers, semiconductor manufacturers, mines with materials for chip production, cybersecurity companies, and businesses seeking to develop artificial general intelligence — an even more advanced iteration of AI with potential for seismic geopolitical disruption.
5. (Re)Ascendance of nuclear weapons
The fracturing global order has brought about new incentives for “ultimate” deterrence through nuclear weapons programs. Moscow has threatened to make use of nuclear weaponry and Chinese nuclear weapons capacity has grown rapidly in recent years. North Korea’s and Iran’s programs raise the probability of proliferation elsewhere, as does the declining confidence in the US security umbrella I mentioned earlier.
What does this mean for investors? Legacy defense and defense innovation sectors are both likely winners in a world of more nuclear weapons, particularly those involved in missile defense, aerospace, and other space-related companies. We’re also likely to see an increased policy focus globally on securing the critical minerals necessary for nuclear weapons development.
Preparing for the next act
From an investment perspective, this new world (dis)order requires a new way of thinking. In a disruptive world, differentiated winners and losers are likely to emerge. Investors may be able to find compelling opportunities at the regional, country, industry, company, and asset-class level, especially across the five themes I’ve outlined here.
While it’s easy to lean into a doom-and-gloom mindset, investors have the ability and incentive to deploy capital in ways that can decrease geopolitical risk, improve climate outlooks, and broaden potential societal and economic benefits of emerging technologies. So, there may be reasons for optimism — both in the pursuit of alpha and for the future state — after all.
