Our interconnected world is under geopolitical and economic strain, yet markets are strangely calm. How long can this last?
"Deglobalisation is the palpable thread connecting the geopolitical havoc created by the Iran war, ballooning public debt, AI creative destruction and widening wealth inequality. It’s an environment that has reshaped our expectations – but also sharpened our conviction."
Global ruptures, policy activism, wealth imbalances and AI’s unstoppable rise don’t seem to be fazing markets. Strap in for turbulence ahead.
Investors are looking through the Middle East conflict, anticipating a swift end. But the physical economy tells a different story: disrupted supply chains, decoupled oil prices, and pressure on commodities far beyond energy. Markets may yet have to reckon with the fact that even a quick resolution leaves months of normalisation.
Developed countries are facing increasing fiscal pressure. Widening budget deficits are stacking onto already-large debt loads, and borrowing costs have risen as long-dated bonds in countries with heavier debt have proven less attractive to investors. The US national debt now exceeds 100% of GDP, nearing its post-WWII record, with interest payments likely to top US$1 trillion this year. As economies near the point at which bond investors stop tolerating fiscal indiscipline, policymakers will be forced into difficult choices — spending cuts, tax rises, or both — which could in turn fuel political disruption. High debt also strips away the flexibility to respond to the next shock.
Industrial policy, long the preserve of emerging markets, is taking hold across the developed world. The US has gone furthest: taking equity in private companies, charging fees on corporate deals, restricting buybacks at defence contractors. We expect this to accelerate, weighing on free markets and on the appeal of the assets it touches.
Much attention has been given to what is called the ‘K’ shaped economy – which reflects a large income inequality gap – in the US. However, the much greater problem is wealth inequality, also known as the P-shaped economy. Since 1975, roughly $80 trillion has shifted from the bottom 90% of US households to the top 1%, who now hold the largest asset share on record. That leaves the consumer more exposed to a downturn than markets seem to price.
Could AI lift productivity across the whole economy? Hyperscalers are now spending around 30% of revenues on capex despite monetisation timelines remaining uncertain and free cash flow under real strain. While the opportunity may be genuine, so is the risk of overspending. Telling the future winners from the also-rans will require caution and most importantly, deep fundamental research.
ARTICLE | 5 MIN | JUN 2026
Amid the geopolitical turmoil driven by the Iran war, we see multiple potential outcomes for economies and markets. We examine key asset allocation opportunities in the context of our base case, downside and upside scenarios.
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