It is well understood that there are short-term cycles created in share markets by fear and greed and longer-term cycles in economies in the form of booms and busts, but I also believe there are even longer, more influential cycles at play. These are the multi-decade geopolitical cycles driven by a small number of major themes that set the framework for everything that follows.
If you consider the past 30 years, we had globalization, the rise of China, and the evolution of the internet and mobile. These few themes influenced the investment and strategic decision-making of governments and businesses across the world and ultimately the lives of every person on the planet.
But the past few years have seen an inflection point as the cycle ends and a new one has clearly begun. Globalization is over, China has not fulfilled the next phase of its economic potential and the internet and mobile are fully embedded in the economic machine.
The new cycle is driven by very different themes. I consider them to be as follows:
A world preparing for war.
The rise of AI
Energy
The first one is not meant to be alarmist in any way, but I will focus most of this note here because all the sub-themes are understood in isolation, but we don’t do a good job of facing up to what is happening when you link them all together. Countries across the world are clearly preparing for war in the years to come. Hopefully another major global conflict never happens, but the machine is already in motion and the multi-faceted sub-themes are taking shape for the decade ahead.
Bifurcation of supply chains
Strengthening ties with allies
Authoritarian governments colluding
Growing defense budgets
The business of war
New battlegrounds
Russia attacking Ukraine turned the world upside down as suppliers became potential adversaries. Germany’s reliance on Russian energy demonstrated how devastatingly dependent countries had become on potential enemies. This led to the realization that there were many other vulnerabilities in the supply chain that represented a threat to national security.
Globalization had come at the cost of national security, and it was immediately obvious that such a risk needed to be mitigated. China had grown to become systemically entrenched in the global supply chain. Now being slowly unwound simultaneously creates new opportunities as reshoring and near-shoring redirect global trade. But the flip side is that China is no longer the growth market it once was. The dramatic fall in revenue and product sales for Apple and Tesla is evidence that China isn’t standing still either as they support domestic competitors.
Meanwhile, there appears to be an increasing level of collusion and trade between Russia, China, and Iran emerging. Despite sanctions from the US and the West, Iran is selling much of their oil to China, while China is providing Russia with an increasingly concerning level of support by way of componentry and materials to expand their military manufacturing.
Russia, China, and Iran targeting 3 separate nations for conflict, Ukraine, Taiwan, and Israel not only serve their own agenda but also distract and weaken the US. By ensuring the US and their military and financial resources are spread more thinly, the timing is not by chance.
The rising threats not only impacts policy and trade but are now leading to a massive increase in defense budgets and military spending in countries around the world. This funding facilitates investment in a variety of traditional and new technology, machinery, and infrastructure. Many businesses are gearing up for this growth from making weapons to cyber security and everything in between.
The rise of AI and the magnitude of its potential to reshape the world is becoming better understood. But it is very much in its infancy. There are decades of growth ahead with innovations, companies and applications that will change the world. Entire industries will rise and fall on the back of these developments in the decades ahead, including some we haven’t imagined yet.
One thing I am certain of is that the long-term demand for energy will increase significantly and it will require huge investments in all forms of energy. This theme encompasses every aspect of the demand and supply of energy. From the many different types of energy to the infrastructure required to produce, deliver, and store it, energy is a theme critical to all aspects of the global economy and society itself.
I do think that the previous cycle will be remembered as one of the most prosperous and peaceful times in history. In many respects that relative peace and prosperity was taken for granted as the good times continued. But that complacency sows the seed of the disruption which creates the next phase of the cycle. But regardless of how volatile and difficult the next phase may be, there will always be incredible opportunities for people to succeed. If history has taught us anything it is that regardless of what happens, the human spirit is undefeated.
General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.