How Wall Street sees the world

We’re four months, 18 weeks, 126 days, or roughly 3,000 hours, give or take, until the clock hits midnight, ushering us all into 2025. Remember those New Year’s goals you set? Us neither. 

And remember how you thought the world would look come August? Ooof 🫣. So when the world’s largest asset manager (BlackRock) published a midyear geopolitics update from atop its cool $10.6T in assets, we took notice.

Here are what we see as BlackRock’s top five quotes, and why — 

1. US-China competition: “Increased working-level dialogue and senior visits should be seen as a tactical exercise and do not structurally alter the competitive dynamics of the relationship.”

Both the US and China have tactical reasons to stabilise their ties right now: Xi Jinping must have one of the world’s toughest domestic in-trays, while the White House is already grappling with wars in Europe, the Middle East, and beyond.

But their strategic game remains the same: Xi Jinping wants China to “lead the world in composite national strength”, while both Kamala Harris and Donald Trump promise variations of the US (not China) “winning the 21st century”.

2. Ukraine-Russia war:“We see a ceasefire or diplomatic solution as unlikely in the near-term with the conflict likely to continue into next year.” 

To understand why this makes sense, just look at the drivers for each party:

• Putin has burnt 600,000 casualties and $250B to entrench himself in Ukraine’s east, with no obvious way out that doesn’t risk his own demise
• Zelensky has little incentive to negotiate with a guy who’s already broken Russia’s last promises from 1994, 1997, 2003 and beyond
• The West has little incentive to acquiesce to Russia’s ill-gotten gains given the precedent it could set elsewhere, and speaking of which…
• Xi has little incentive to stop helping Putin, given that sweet sweet status quo (a dependent neighbour and a distracted rival).

So with Ukraine now playing some kind of reverse Uno against Russia, which continues to pummel Ukrainian cities, it’s hard to see any deal emerging soon.

3. Middle East conflict: “From the perspective of the markets and the global economy, the situation in Gaza remains fairly contained – although the resulting humanitarian crisis is catastrophic.” 

Notwithstanding the high humanitarian toll, events in Gaza and Israel indeed have limited direct impact on global markets – Gaza is the size of Detroit, Israel is the size of New Jersey, and neither can single-handedly roil the global economy.

But widen that aperture a little to include indirect impacts, and things get more complicated. Eg, the Houthis are still blaming Israel for Houthi attacks on Red Sea shipping, which is still at the heart of ongoing unease across global shipping. And that’s what makes our global economy go ‘round.

4. Energy transition: “Clean energy will increasingly become a source of geopolitical competition, we think, benefiting those who can control and access it.”

This is already playing out, remember? China just deployed more new green energy than the UK’s entire energy output over the same period – and sure, that helps collapse solar and battery prices and accelerate the world’s energy transition. But it’s also deepening the world’s dependence on a single mercantilist supplier, and it risks eroding other tech and industrial bases in the process.

5. Cyber attacks:“Mounting geopolitical competition will likely cause cyber attacks to increase in scope, scale and sophistication.” 

You could divide this into two categories – one is the way rival states are now openly probing cyber vulnerabilities to erode public confidence and cause havoc in case of a war. The other is the way organised crime is increasingly exploiting new tech, complacent boardrooms, and distracted governments to make a killing.

Geopolitical competition drives the first one directly, and the second one indirectly. And either way, cyberattacks have now doubled since the pandemic, while government responses are imposing economy-wide costs. But if you think the cost of action is steep, wait ‘till you see the cost of inaction.

Anyway, should we open our own fund? We’d welcome any name suggestions, but we’re really vibing with StoneRockSentinalGuard. We’re gonna start mocking up some fleece-vests.

INTRIGUE’S TAKE

A smug thing to do at parties is to casually slip into conversation how we’re now in a ‘polyfurcated’ world. Uffff, feels good just typing that: ‘polyfurcated’.

The folks at Blackrock coined it in their report, describing a world which is – unlike a bifurcated world – now hurtling towards a future with multiple and starkly divergent possible outcomes: maybe Trump wins, or maybe it’s Harris; maybe Putin prevails, or maybe he gets polonium in his underpants; maybe AI just makes the Amazon help-bots better, or maybe it gets us to Mars.

And the thing is, while markets have traditionally been pretty good at pricing in financial or economic risks, they’ve often struggled to price in geopolitical risk – even when it’s a bifurcated risk like an election. So polyfurcated? Ufff.

But don’t be intimidated by words or parties, dear Intriguer. Just keep taking a clear-eyed view of the risks ahead, and who you trust to help navigate them.