Sign up for timely perspectives delivered to your inbox.
Geopolitics is one of the three macro drivers Janus Henderson believes will shape the next decade for investors. Here, the Economist Intelligence Unit explores some of the data behind the driver while Janus Henderson CEO Ali Dibadj provides his perspective on what it means for investors.
Global politics is becoming more volatile, creating uncertainty but also opportunity for businesses and investors. The Economist Intelligence Unit (EIU) has been tracking political and geopolitical stability for decades. Our dataset shows a clear rise in the threat posed by international tensions to economies over the last 15 years. We assessed in 2010 that around 40% of the geographies we surveyed faced ‘no’ or ‘low’ threat from international tensions; that proportion has now fallen to 25%. Managing geopolitical risk has risen quickly up the agenda for governments and companies.
Source: The Economist Intelligence Unit, 2023. Based on 180 geography dataset.
Shifts in the global distribution of power have driven these changes. US primacy is no longer as absolute as it was in the 1990-2009 period, weakening its ability and resolve to act as the “world’s policeman”. Rising powers, such as China, seek greater global influence, while violent non-state actors see opportunity to cause disruption. Geopolitical rivalry has hamstrung the ability of international organisations to mediate security and trade disputes. The widening internationalisation of armed conflicts, as more external parties seek to influence outcomes in a manner favourable for their interests, makes them harder to resolve.
Investors should expect more geopolitical volatility in the coming years. Concerns that we could see the emergence of a global war or even nuclear conflict are overdone: there are few signs of a rival axis emerging to fundamentally challenge the US and its allies (China and Russia relations are not as strong as might be assumed). Nevertheless, our long-term economic outlook points to a further diffusion of global power that will provide emerging economies with greater influence and drive changes to the set of international rules and institutions that have been in place since 1945.
Source: The Economist Intelligence Unit, 2023.
Power contestation and shifts will have a profound impact on investors. Periods of geopolitical change have historically driven important changes in economic outcomes. We see an impact from the current geopolitical environment in several key areas:
Source: MeasuringWorth.com; the Economist Intelligence Unit, 2023.
Absent outright conflict, changes in the global distribution of power tend to occur gradually. Nevertheless, recent conflicts in Europe and the Middle East give a sense at the moment that shifts in geopolitics are occurring unusually rapidly. Understanding the implications of this new era of geopolitics will become increasingly fundamental in investing, both to protect against unexpected risk as well as find opportunity.
“As outlined in Navigating change: Three drivers for long-term investment positioning, we share the Economist Intelligence Unit’s view that geopolitics will have meaningful implications for the economy, global trade, and the supply chains that enable it.
For investors, the impact of this shift has multiple layers, and it will be important to assess opportunities though both a macro and a micro lens. Understanding the environment in which companies operate – and whether the geopolitical backdrop is one conducive to that company and industry – is more critical now than ever. Navigating the knock-on effects of cross-border disputes, onshoring, and supply chain adjustments is becoming as important as analyzing the company itself. Our 340+ investment professionals are experts at analysing this kind of change, and we draw on 90 years’ experience of actively positioning investment portfolios on behalf of clients.
Geopolitics will impact all asset classes and we agree with the EIU’s assessment that knock-on effects will include shifts in fiscal spending, a higher cost of capital, elevated yields making bonds attractive, productivity and technological advances, and AI-led developments. Against this shifting backdrop, we seek to provide ongoing differentiated insights to help investors navigate change and think holistically as they position for a brighter investment future.”
Ali Dibadj, Chief Executive Officer