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 University and co-hosts one of Britain’s most popular podcasts, suggested that investors must embrace rigor, 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 that reveals how we created a 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 period from 1989 to 2004 was marked by the global spread of democracy and neoliberal, or free-market, economic policies. Institutions such as the North Atlantic Treaty Organization (NATO), the United Nations (UN), and the World Trade Organization (WTO) have flourished. Western military interventions in Bosnia and Kosovo on humanitarian grounds were primarily seen as successful.
The media and politics were centralized 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 US. 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 liberalization – characterized by deregulation, privatization, and globalization – inevitably 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 have begun to decentralize information and amplify political extremes. The world became less predictable, and investors had to contend with increasing volatility.
Age of populism, unpredictability
After a decade of development, we now find ourselves in a shadowy world where populist leaders, such as Donald Trump in the US, Narendra Modi in India, and Xi Jinping in China, hold power.
The global shift toward protectionism, authoritarianism, and isolationism has weakened traditional institutions, while politics have become more personalized and, with that, more volatile. The unpredictability of leaders poses a significant challenge for investors, resulting in a fractured and unpredictable landscape where our long-held 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 center 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 sufficient. 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 their investment strategies, investors can build resilience and better mitigate the risks associated with a more uncertain world.
By incorporating geopolitical analysis and scenario planning into their investment strategies, 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 innovationAdvances 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.
- AIWhile disruptive, AI holds immense potential for increased productivity if managed wisely. It has the power to revolutionize industries, improve efficiency, and create entirely new markets. From healthcare to logistics to finance, the applications are vast. Investors who recognize its potential and back the right companies will be well-positioned to reap the benefits.
Final thoughts
Investing in the shadow world requires placing geopolitics at the center of investor analysis and incorporating scenario planning to ensure a plan for any potential outcome. 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.
Important information
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed, and actual events or results may differ materially.
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