The importance of security has been accelerated by the dramatic reshaping of international relations under the second Donald Trump administration.
It is becoming a greater priority for governments, industries, companies, and individuals – and this trend will be increasingly impactful for financial markets over the coming years. From an investment perspective, security is increasingly impacting all aspects of financial markets.
Inherent tensions in international order
We are living through a profound shift in the geopolitical landscape. At its heart is the growing strain from increased global population, economic growth and resource consumption, which exacerbates issues such as climate change, resource scarcity and geopolitical instability – challenges too complex for any one nation to manage alone.
These challenges have exposed the increasing weaknesses in the post-Cold War order. Yet with no consensus on the ideal political or economic system, nor a sufficiently shared global identity, there is currently no realistic pathway to a single unified solution.
These fundamental shifts have recently become more pronounced, as evidenced by the foreign policy direction taken by the new Trump administration in the US. The relative stability of a unipolar, US-dominated world in recent decades has frayed and is giving way to a ‘multipolar’ world.
With the US redefining its relationships with both traditional allies and rivals, China and other ‘non-Western’ countries too are seeking to reshape the international order in their favour, using protectionism, trade wars and even the rising threats of military action to further their interests.
Increasingly, financial decisions made by organisations and individuals worldwide are driven by security concerns rather than purely economic or efficiency-driven motivations.
The definition of 'security' has expanded significantly, covering not only direct threats like cyber and military actions but also broader vulnerabilities in global food and energy supply chains.
It now also encompasses rising unease about the reliability and sustainability of established global networks for trade, investment flows, information exchange and the free movement of people.
The end of Pax Americana
While the inherent tensions in the international order have been building for many years, the events of the early 2020s – including the pandemic, the Russian invasion of Ukraine, and the re-election of president Trump – suggest that the cracks in the system have widened beyond repair, and we have entered a new era: one in which security will play a major role.
The actions of the new Trump administration, most obviously the extraordinary levels of tariffs announced on 'Liberation Day', are the final nail in the coffin for the 'Pax Americana' – the era of relative peace and stability, underpinned by a US commitment to a rules-based world order.
This has sharply accelerated the trend towards 'power politics' where international relations are dictated by power dynamics and national interests, rather than global institutions or frameworks based on common rules and values.
New era, new opportunities
This environment comes with risks, but also opportunities. For example, companies such as cybersecurity specialists Fortinet and Palo Alto Networks should benefit from increased spending on combating sophisticated cybercrime.
Similarly, with businesses and governments prioritising supply chain resilience, this is creating opportunities for companies that provide reliable access to energy, food, and critical materials. This will benefit companies involved in natural resources, like Rio Tinto, and the food supply chain, like Deere.
While we see these geopolitical shifts as relevant for almost every large, listed company, some industries and businesses are naturally more resilient. This could be because they are more domestically oriented, serving a local rather than international client base.
The nature of the business may also mean it has very simplified supply chains, or limited exposure to geopolitical disruptions, or could even benefit from a more sympathetic regulatory regime, as policymakers seek to protect and nurture homegrown champions.
Financial services businesses, such as CME Group and JP Morgan Chase, remain relatively resilient in this regard. Another example is the South America-based retailer MercadoLibre, which we view as comparatively well insulated against supply chain disruptions, potentially allowing it to benefit more from this environment than its peers.
Adapting to change
The core of our thematic philosophy is that markets, by focusing too much on the short term, underappreciate the long-term impact of broad, inexorable themes such as shifting demographics, technological developments, and the growing challenge of climate change.
The existence of these themes is no secret. However, institutional pressures to deliver short-term performance and behavioural biases that oversimplify complex issues often prevent investors from accurately assessing long-term impacts – causing them to overlook significant risks and opportunities.
By adding security to Sarasin & Partners’ thematic framework, we acknowledge its growing importance in shaping financial markets and we equip ourselves to understand its effects thoroughly – both the challenges it creates and the investment opportunities it unlocks – as this structural change permeates the global economy.
Colm Harney is a portfolio manager at Sarasin & Partners. The views expressed above should not be taken as investment advice.