Every generation of investors, it seems, must come to terms at some point with a new world order. This is as much about balance of influence globally as it is about money, challenging investment analysis.
Often the pivotal event is only recognised in retrospect – or at least its nuances take time to be fully understood. Picking up on a rotation in power dynamics means looking for different signals and inputs.
History now recognises the significance of the Suez Canal in 1956 and the end of Bretton Woods in 1973, which culminated with the oil crisis. The upheaval is not just price moves but the shift in world influence that follows.
It can take a few years before stock markets fully accept this and reallocate portfolios. The invasion of Ukraine joins this list of turning points, even though it is an event that has already been running for eight years. This time, the impact on the investment landscape could come faster.
Even now, while attention focuses on views across Europe and the western world, there is less coverage of how other regions view the conflict. The West might have become more unified in reaction to the invasion, but large parts of the world are not supportive.
This is despite the possibility that Ukraine might give pretext for hostilities breaking out elsewhere. China, Iran and North Korea could see US and Nato distractions as an opportunity to escalate existing tensions.
Something viewed within Europe as a specific issue of right versus wrong is seen through the lens of each country’s own history and alignments in other parts of the world.
Outside Europe what matters is typically a local agenda and the strategic options that the conflict offers. Changed terms of trade, leveraging the value of scarce resources and creation of new partnerships will be the goals of many.
For the major European powers, it is hard to recognise that much of the rest of the world is post-colonial. Already we can see that colouring reaction from Africa and India.
The decade ahead could see more rapid unwinding of globalisation, and a resurgence of the theme of resilience. In Europe and the US, re-onshoring and shorter supply chains will be the new priorities.
Investors will need to consider the risk implicit in global business models; facing rising cost of energy, metals, food and even money itself. Sourcing supplies long-distance now only makes sense if there is no local alternative. And China may see an opportunity to supply rare metals with more thought to politics.
Facing the West is not just an oil price shock but an uncomfortable loss of control in manufacturing and trade; the prospect that access to key resources is not a free market. And the US dollar, previously accepted globally as a reserve currency, is now weaponised.
That may move more trade in commodities into other currencies and ultimately reduce US influence. Russia is a major supplier to China of electricity, crude oil and coal and can still acquire currency even if it is locked out of dollars.
Investors might also consider where all this takes the carbon agenda and net zero. In the new world order, there may be some reversal on sustainability. The year began with the EU accepting gas and nuclear power as sustainable within its proposed taxonomy.
Now, facing Russian gas supply threats, Germany has reactivated old coal power plants – contradicting its plan to phase out coal by 2030. And the UK is looking again at fracking. Compromise seems likely given competing existential threats; climate change and Russia.
The turmoil challenges deep-seated beliefs; what was unimaginable must now revise our view of the world and investment strategy. But even though the consequences may take time to work through the stock markets, the international consensus we presumed for a rules-based world has gone.