Geopolitics and Foreign Investment

Geopolitical beta refers to identifying geopolitical and political phase shifts that will underpin the macro environment over the long term. Long-term investors must take geopolitics into consideration as it is the most salient factor influencing long-term asset returns. The two frames of analysis are geopolitics – great power confrontation – and politics, domestic arena that sets economic policy. The interaction of these two paradigms produces the macroeconomic context that influences investment returns. We believe that the world will remain multipolar on the geopolitical front and that most economies will strive toward a dirigiste form of capitalism. Long-term investors, however, should determine their own forecasts and plan accordingly. Political and geopolitical frameworks will impact long-term growth and inflation forecasts. The most favorable investment environment – producing a high-growth/low-inflation outcome – is a unipolar geopolitical context combined with laissez-faire policies. In our view, this is not a likely policy mix over the rest of the decade. Investors should expect growth outcomes to be relatively favorable over the rest of the decade. But we remain firmly in the inflation camp as the unipolar-laissez-faire context is unlikely to repeat.