CIO Insight: Investing Implications of a New World Order

We see a potential global regime shift, which our economists call the return of “realpolitik.” After decades of globalization and the spread of liberal democracy post the Cold War, we’re seeing countries turn inward, prioritizing power, security and self-interest over ideals and efficiency.
 
The shift toward a return of realism in international affairs comes as Russia and China didn’t liberalize as hoped following the optimism of the 1990s, economic integration didn’t guarantee peace and alliances frayed. 

What does that mean in practice? International relationships are becoming more transactional—less about building long-term partnerships, more about deals that serve immediate national interests. Economic decisions aren’t always “rational,” they are strategic and sometimes even protectionist.

For investors, this new era has implications.

Diversification looks more appealing. If countries and regions are moving at different speeds, market correlations may reduce. The market dynamics we have seen for the last 20 years of increasing coordination have been replaced by more regional unpredictability.

Strategic sectors are in the spotlight. Certain industries are becoming national priorities—for example energy, defense and technology. These aren’t just economic sectors anymore; they’re political priorities. Governments are investing, protecting, and sometimes even subsidizing these areas to secure their own interests.

Investors are becoming more sensitive to macro and political risks. Overall, while equities and credit have weathered the recent storm so far, the ledge is narrowing, and markets remain vulnerable to negative surprises if the US shutdown persists or inflation data disappoints.

Figure 1: The End of Certainty?

From liberal optimism to geopolitical realism — the world order is shifting

Source: V-Dem. Data as of April 16, 2025. Historical returns on stocks, bonds and bills: 1928-24 (pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html) Past performance is not a guide to the future.

This CIO Insight was coauthored by Sonja Laud, Global Chief Investment Officer, and Jason Shoup, Chief Investment Officer, Asset Management, America, and Co-Head of Global Fixed Income.

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