Geopolitical fragmentation and economic competition

The Ukraine war and strategic competition between the U.S. and China have ushered in a new era of competing geopolitical and economic blocs. This marks a departure from the post-Cold War era of steadily increasing globalization. We see countries favoring national security and resilience over economic efficiency, accelerating the rewiring of supply chains. As competing blocs firm up, multi-aligned countries are likely to grow in power and influence. A surge of investment in tech, energy, infrastructure and defense could create opportunities.

Without significant tech-driven productivity gains, a preference for national security and resilience over economic efficiency will likely result in lower growth and higher inflation.

We think economic growth will be more volatile and more vulnerable to shocks.

Industrial and protectionist policies could spur investment in areas like technology, clean energy, infrastructure and defense – potentially creating opportunities. Yet economic costs could rise longer term, particularly in emerging markets.

Investors will need to be more cautious in targeting themes set to benefit from these trends, we think.