Stewart painted a picture of a world in which traditional assumptions no longer hold – the global landscape has shifted from a predictable, rules-based order to one that’s marked by fragmentation, volatility, unpredictability and impunity.
The former UK Cabinet minister, who now teaches at Yale and co-hosts one of Britain’s most popular podcasts, suggested that investors must embrace rigour, flexibility and resilience to navigate this turbulent environment – one in which two big themes may still give cause for optimism.
Emergence of the shadow world
Stewart delivered a whirlwind tour of recent history, masterfully connecting the strands of a troubling narrative of how we created this riskier, and arguably more dangerous, world.
He traced the evolution of global politics through three distinct phases: 1989–2004; 2004–2014; and 2014–present day. Each era contributed to the emergence of the shadow world.
Age of liberal democratic consensus
The 1989-2004 period was marked by the global spread of democracy and neoliberal, or ‘free market’, economic policies.
Institutions like the North Atlantic Treaty Organization (NATO), the United Nations (UN) and the World Trade Organization (WTO) flourished. Western military interventions in Bosnia and Kosovo on humanitarian grounds were largely seen as successful.
The media and politics were centralised and consensus-driven – reinforcing the belief that elections could only be won by dominating the political middle ground.
Meanwhile, the global order was maintained by one benevolent superpower – the United States. Investors could rely on a stable, predictable environment where the rules were clear.
Rise of disillusionment
The following decade saw the extraordinary rise of China, which challenged the assumption that economic liberalisation – deregulation, privatisation and globalisation – leads to democracy.
The 2008 global financial crisis exposed deep inequalities. Its fallout eroded faith in free-market capitalism. In international relations, the failure of Western-led military interventions in Iraq and Afghanistan discredited the rules-based international system.
In technology, social media and smartphones began to decentralise information and to amplify political extremes. The world became less predictable, and investors had to contend with increasing volatility.
Age of populism, unpredictability
Another 10 years in the making, we now find ourselves living in a shadow world in which populist leaders, such as Donald Trump in the US, India’s Narendra Modi and China’s Xi Jinping, are in power.
The world has tilted toward protectionism, authoritarianism and isolationism. Traditional institutions are weakened, and politics has become increasingly personalised and volatile.
The unpredictability of world leaders like Trump – who often act without consultation or clear logic – poses a major challenge for investors. For example, US trade tariff policies since ‘Liberation Day’ are erratic and driven by conflicting rationales.
The result is a new fragmented and mercurial landscape where all our old assumptions about how the world works no longer hold true.
Geopolitics, scenario planning
In this shadow world, Stewart reckoned, investors must place geopolitics at the centre of the decision-making process. They need to study how geographic, political, economic and strategic factors influence the relationship between countries and regions.
Relying solely on economic indicators and market trends is no longer fit for purpose. Instead, investors must enhance the investment process by embracing greater geopolitical awareness with rigorous scenario planning.
Scenario planning involves considering multiple possible futures and developing strategies to navigate each one. It requires flexibility and the ability to adapt to changing circumstances. Investors must prepare for even the most improbable outcomes.
The rise of artificial intelligence (AI) and the energy transition are as much about geopolitical rivalry as they are about technology. Geopolitical flashpoints, such as the Middle East, Taiwan and Ukraine, are also reshaping global risk and opportunity.
By incorporating geopolitical analysis and scenario planning into investing, investors can build resilience and better mitigate the risks associated with a more uncertain world.
Reasons for optimism
Despite this grim outlook, Stewart also identified two transformative forces that offer reasons for hope:
- Energy Innovation. Advances in renewables and nuclear fusion could unlock new growth. The transition to cleaner energy sources is not only beneficial for the environment but also presents significant investment opportunities. Companies at the forefront of energy innovation – whether in solar, wind, battery storage or next-generation nuclear – are poised to benefit from both policy support and market demand.
- AI. While disruptive, AI holds immense productivity potential if managed wisely. It has the power to revolutionise industries, improve efficiency and create entirely new markets. From healthcare to logistics to finance, the applications are vast. Investors who recognise its potential and back the right companies will be well-positioned to benefit.
Final thoughts
Investing in the shadow world requires placing geopolitics at the centre of investor analysis and incorporating scenario planning so that you have a plan for whatever happens.Many of our old assumptions about how the world works are no longer valid. It feels like the rules are broken every day with impunity. The unthinkable no longer seems impossible.
Investors need to be prepared. That’s because the future belongs to those who can look beyond economics and markets, embrace change and think strategically.