Where Should Investors Look in Times of Global Disruption?


Peter Zeihan: The Geopolitics of a Fragmenting World

Geopolitical strategist Peter Zeihan has been predicting — and more recently, interpreting — a world that is fragmented by a failure of global stability. The work has kept him busy, and he is likely to get busier in the coming months.

International tensions and global disarray have given rise to stories about Brexit preparations that look more like people getting ready for Armageddon, the CFO of a Chinese tech company whose arrest has exacerbated international tensions, and rumors of Venezuelan gold ready to be spirited away from the country’s central bank.

From Zeihan’s perspective, these events are all symptoms of an unraveling global order. And he thinks that this disruption in the global status quo has been long overdue. As he wrote in his October 2018 newsletter:

“[T]he entirety of what makes the modern world work — global supply chains for shipping, manufactures, finance, agriculture, energy and other raw materials — is an unintended side effect of a security strategy that achieved its goal back in 1989. And since the Americans are the only country capable of maintaining the military and economic structures the global system needs to survive — and because the Americans do not necessarily need those structures themselves — the whole thing is falling into Disorder.”

Other geopolitical strategists, such as Ian Bremmer and Nader Mousavizadeh, have made similar observations about a world that has become increasingly unstable and dangerous along with the rise of messy multilateralism. They all expect a future where international relations are complicated by instability and volatility — one where investors need to be ready for anything.

The deadline for the United Kingdom’s exit from the European Union is drawing closer. The president of the European Commission, Jean-Claude Juncker, has said that a disorderly exit would be an “absolute catastrophe,” but ongoing negotiations show little signs of averting it. Many British companies are looking at emergency plans to move operations abroad.

In North America, trade relations between the United States, Mexico, and Canada have been renegotiated under President Donald Trump. Zeihan has argued that domestic politics in Canada have made it unusually difficult for the country to defend its own interests, and it may be facing governmental turmoil in the coming year. In fact, the divergent interests of individual provinces and its federal government have led Zeihan to suggest that Alberta would benefit from joining the United States.

In South America, Venezuela is struggling with a full-blown political crisis. But economic turmoil may also be on the horizon for Brazil, where Zeihan thinks conditions are as good as they are going to get. The country’s agricultural sector has been dealing with expensive inputs that include high transport costs and externally sourced fertilizer. Those challenges could be aggravated by disruption in the global markets.

In Asia, investors are keeping an eye on China’s economy, which may be showing signs of a domestic slowdown. Economic shocks originating in China would be felt around the world, which places extra emphasis on the trade negotiations between President Trump and President Xi Jinping.

In the year ahead, investment managers will have to make some important decisions to address the complicated forces at work in the global markets. At the 72nd CFA Institute Annual Conference, they’ll have a chance to hear from Zeihan and other experts who will be leading sessions that discuss the disruption that is affecting the global investment profession, and how to harness its opportunities and approach its challenges.

Register today to attend the conference, network with your peers, and participate in the conversations that will guide and shape the future of global investing.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: CFA Institute

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