At a London media event this week, experts at Boston-headquartered Wellington Management, a large investment manager, discussed the dramatic shift in the geopolitical landscape and how it is affecting global markets.
“We are in the most chaotic, geopolitical environment that anyone
has had to deal with,” Thomas Mucha, geopolitical strategist at
Wellington
Management, said at a media event in London this week
“There has been a shift away from economic resilience towards
national security resilience, as a result of geopolitics,” he
continued. “Climate change is another issue having a
significant impact globally, particularly, for instance, in the
tropics, South America, with water scarcity concerns.”
However, investment opportunities can be found in this changing
geopolitical environment. “There are winners and losers,” Mucha
said. “Defence spending is at a record high and it will
continue.”
Germany and the EU recently hiked defence spending, as a result
of geopolitical tensions. Mucha said that former US President Joe
Biden and President Donald Trump had both been pushing the
EU for some time to boost defence spending, which is now
happening, sparked by the war between Russia and Ukraine.
A number of investment managers, such as BNP
Paribas Asset Management and WisdomTree, have been
launching
defence-focused funds recently. “Defence and security are
underrepresented in many portfolios and have faced decades of
underinvestment in Europe, resulting in a significant capability
gap. A structural shift is underway in Europe as nations increase
defence budgets to meet NATO targets and respond to geopolitical
challenges,” Pierre Debru, head of research, Europe at
WisdomTree, said in a note. (The increasing noise around
geopolitics also affects how wealth managers should think about
the topic in general, as this publication
explored here.)
“Artificial intelligence is also important to the shifting
landscape,” Mucha continued. “It is important, for instance, in
national security, for use in cyber security. Cyber attacks are
one of the biggest risks. There are increasing investment
opportunities in cyber security and cyber defence.”
“Climate resilience as a theme is also important,” Mucha said. In
this respect, renewable energy is important. China is leading the
way on renewables, notably in solar, batteries, and electric
vehicles. While China still relies on fossil fuels, it produces
more than 80 per cent of all solar photovoltaic panels, half of
the world’s leading electric vehicles and a third of its wind
power. Meanwhile, Trump reiterates “drill baby
drill.” However, Mucha emphasised that a number of US states
– California for instance – and the private sector remain focused
on renewables. Sixty-six per cent of California’s power, for
example, came from renewables in 2023. “The US wouldn’t want
to give China that power and see it taking control of
renewables,” he added. Demand is also rising for copper,
silver and tin needed for artificial intelligence, tech and
renewables.
On asset allocation, Amar Reganti, credit strategist at
Wellington Management, said there has been a substantive
shift towards emerging market debt and emerging market
equities, as well as a move towards private markets and
hedge funds.
He is not alone in his views. A number of investment managers are
positive about emerging markets this year. Paris-based asset
manager Carmignac,
for instance, recently said that emerging market equities,
notably tech, remain undervalued compared with the US. The firm,
which is overweight in emerging markets, believes that their
outperformance of developed markets will continue in 2026.
Benjamin Melman, global chief investment officer at
Paris-headquartered
Edmond de Rothschild Asset Management is also increasing his
exposure to emerging markets. After lagging for several years,
Melman believes that these stocks stand to benefit as investors
reposition their portfolios away from the US – now that the AI
cycle has reached maturity – and seek out new AI-related stocks.
See
here and
here.
