Shifting world order
The world is deeply divided, leading to increased trade conflicts and tensions between countries. However, stock markets have shown a remarkable ability to recover quickly from the turmoil, indicating that investors see these challenges as growth opportunities rather than threats.
Within six weeks of the conflict with Iran and the subsequent spike in oil prices, stock indexes on Wall Street returned to pre-war levels. This was two weeks faster than after President Trump’s tariff measures last April, and much faster than the recovery from the Ukraine conflict crisis, which took two years, or the COVID-19 pandemic, when it took six months to recover.
Trump is only a “symptom.”
These events have had a significant impact on the world economy and global alliances. Economic and military competition has become an integral part of Trump’s policies, and his administration has accelerated these processes. However, many experts believe that changes in the world order are not only due to his actions. The Brookings Institution notes that Trump is more of a “symptom than a cause” of global upheaval, and that the trend toward national and regional self-sufficiency will continue after he leaves office.
For markets, such a world is often perceived as unstable, with multiple frictions and cross-border costs that put pressure on businesses and economies. Nevertheless, the rapid economic recovery in recent years is largely due to the rapid development of technology, including artificial intelligence, biotechnology and clean energy, as well as infrastructure development.
Increased military spending and the need for cybersecurity in an increasingly fragmented world are driving demand for digital technologies, expanding artificial intelligence, and chip manufacturing. This can benefit not only the U.S. but also other countries.
With globalization, US leadership in the technological sphere was virtually assured. Their allies saw no need to create their own technological giants, preferring to buy advanced technologies. However, the situation changes when all key technologies are concentrated in the US, and America ceases to be a friendly power.
Technology & Geopolitics
Lack of own technology can make a country as vulnerable as dependence on energy resources. In an article published in Foreign Affairs, former U.S. National Security Advisor Jake Sullivan notes the escalating U.S.-China rivalry. He argues that it now comes down to technology.
“Technological power is being transformed into geopolitical power on a scale not seen in recent years,” Sullivan writes. “For the first time in a long time, the United States faces a real peer competitor.”
Sullivan argues that China, by controlling key technologies and supply chains, is seeking global dependence while gaining its own independence.
He says the country already produces 70 percent of the world’s lithium-ion batteries and three-quarters of all battery cells. China is also trying to replicate this success in biotechnology, having made significant strides in artificial intelligence and digital technology.
Regarding Washington’s response, Sullivan emphasizes that innovation and manufacturing must be integrated domestically.
He also warns that U.S. leadership in technology will only be sustainable with global support for its digital infrastructure.
The situation outside China is becoming more complex. Beijing and Washington have long been irreconcilable rivals. However, a breakdown in alliances between the US and Europe, the Middle East or East Asia could lead to similar technological rivalries in these regions as well.
This may seem inefficient and costly, but geopolitical risks and security priorities mean that demand for technology, chips and equipment will be higher than in a more globalized world.
Risks mean new opportunities
Over the past six weeks, markets have seen technology share prices fall sharply on news of war. However, earnings expectations have risen and investors have started buying up cheaper stocks.
Energy and defense stocks contributed to upward revisions to full-year earnings forecasts. The biggest increase in expectations was seen among US technology companies and major chip makers in Taiwan and South Korea.
BlackRock strategists opened a new chapter in their recommendations. This week they again suggested increasing the share of U.S. and emerging market stocks in investment portfolios. The experts noted that the premium for the expected value of U.S. tech stocks has shrunk to its lowest level since the pandemic peaked in mid-2020.
BlackRock presented an updated chart showing the revision of profit forecasts in a positive direction after the conflict with Iran. That fact is hard to ignore against a backdrop of continued global technological advancement.
“We see geopolitical fragmentation driving the defense and aerospace industries, encouraging governments to more aggressively pursue energy independence and forcing companies to increase investment in supply chain resilience,” BlackRocksaid . “In addition, developments in artificial intelligence will drive demand for infrastructure and energy resources.”
Shares of the world’s leading technology companies and chip makers have started to recover after significant declines in their value. While the market had previously feared a bursting of the tech market bubble, the last month has provided answers to some of these questions. Geopolitical fragmentation can only reinforce this trend.
The outlook for earnings growth in the US and Europe for this year has actually improved since the conflict with Iran began.
Prepared according to Reuters
