Mark Carney’s recent speech at the World Economic Forum in Davos bluntly articulated a reality investors have been grappling with in recent years: the post-Cold War economic order is fragmenting, and the institutions that once underpinned globalization are struggling to keep pace. Carney framed the moment as a transition toward a “new world order” defined by strategic competition, economic security, and a diminished role for universal rules-based coordination. While Western governments may have previously hoped to “wait out” US policy tremors, the speech represented an acknowledgement that these shifts are becoming increasingly entrenched. What once passed as abstract geopolitical risk is now central to the investment landscape.

Carney’s speech noted that global institutions (which were built when economic leadership was more concentrated and political alignment was relatively stable) are misaligned with today’s balance of power. Interests are now more contested, power is more diffuse, and economic policy is increasingly weaponized. Donald Trump’s skepticism toward multilateral institutions reflects a broader shift in US policy thinking; one that prioritizes domestic resilience, bilateral leverage, and transactional outcomes over collective governance. The implication is not the collapse of global institutions, but their gradual loss of authority and relevance.

This institutional drift has real consequences for financial markets. A world with weaker global coordination is one with greater policy dispersion, more frequent shocks, and higher volatility. Trade rules are less predictable, capital flows more politically sensitive, and supply chains more exposed to intervention. Investors can no longer assume that efficiency will dominate policy choices. Redundancy, security, and domestic capacity now matter. This environment challenges traditional portfolio construction assumptions, particularly those built on stable correlations between regions and asset classes.

Financial markets are already responding. Currency fluctuations, in recent years dominated by interest rate differentials, now increasingly factor in policy risk. The US dollar remains dominant, but these new geopolitical realities have prompted gradual diversification by central banks and reserve managers. Per the chart below, the US dollar has seen its proportion of global reserves fall steadily since the start of Trump’s first term in office. “Real economy” asset classes including commodities, infrastructure, and defense-related industries are benefiting from governments’ renewed focus on strategic autonomy. Industrial policy, more commonly used by emerging markets in recent years, is now firmly entrenched in advanced economies, reshaping relative winners and losers across sectors.

Equities, too, are being repriced through this lens. Companies more exposed to global trade and frictionless supply chains face higher uncertainty, while firms aligned with reshoring, energy security and infrastructure investment enjoy structural tailwinds. Bond investors must contend with a world where fiscal slippage concerns are increasingly impacting yield dynamics, particularly as governments spend to reinforce economic sovereignty. 

For investors, the implication is not to retreat from global markets, but to recalibrate expectations. More than ever, global diversification and an informed worldview are critical to manage this shifting landscape.

With a reflationary environment likely to exert upwards pressure on long-term bond yields, other sources of diversification and ballast are necessary to offset equity risk. Cash, cash equivalents (including short-term bonds) and gold bullion are thus critical portfolio “shock absorbers” tasked to help smooth out volatility. Cash levels remain neutral this quarter, while balanced and growth-oriented strategies continue to hold gold bullion exposure.

Global fixed income markets are light on attractive opportunities, as relatively flat yield curves caution against taking duration risk, while tight credit spreads weigh on corporate bond upside potential. Widening fiscal deficits will likely not help matters, from both a quality and net issuance perspective. Fixed income exposure remains modestly underweight in client portfolios.

US bank equities have been the beneficiaries of a resilient US economy, reduced regulatory uncertainty following the Silicon Valley Bank collapse and a pivot towards deregulation under the Trump administration. However, following 2 years of strong performance, valuations have deteriorated, a shaky labour market has raised questions about US consumer health and warning signs are emerging from private credit exposure. We have elected to take profits on US bank equities and invest the proceeds back into “core” broad market US equity positions this quarter.

Copper prices should be supported by a multitude of factors including a weakening US dollar, electrical grid enhancements, data center demand, electric vehicle proliferation and a reflationary environment underpinned by fiscal expansion in major nations worldwide. Accordingly, copper mining companies should be the beneficiaries of continued M&A activity, rising earnings and increasing flexibility in deploying free cash flow (capex, buybacks, dividends, etc.) We have initiated a position in global copper miner equities in balanced and growth-oriented strategies this quarter.

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