How Storm Proof is Your Portfolio?
Article from Beat Wittmann, Chief Investment Strategist @ Key Family Partners
We live through epochal changes – in geopolitics, security, economics, business, science and technology. We are drowned in daily news and noise. It is key to filter and focus on few relevant factors.
So, how storm proof are your assets in regard to capital protection and tapping unprecedented opportunities. Let’s think outside the box in context of your investment portfolio.
Nuclear Proliferation All Around
Putin’s military attack on Ukraine threatening Europe with tactical nuclear missiles and Trump’s abandonment of European allies including the questioning of the nuclear umbrella within NATO has sharply increased nuclear proliferation risks. Now add Israel’s war with Iran considering the latter’s nuclear program.
Given this fast evolving geopolitical situation, nations such as Ukraine, Israel, Iran, Japan, Germany and Saudi Arabia are clearly incentivized from a national security perspective to acquire or upgrade their nuclear program. Now, who gets to decide on nuclear might, is it multilateral organizations, super-powers or simply the strongest neighbors? The tragedy of Ukraine was, as we know in hindsight, to hand over its nuclear arsenal to Russia against guarantees and acceptance of its sovereignty – signed in December 5th 1994 with the Budapest Memorandum.
Autocrats in Political Overreach
Autocrats in democracies and dictators in one-party states are in control for as long as it lasts. Typically, they suffer from an unhealthy mix of megalomania and inferiority complexes – and often appear much stronger than they are. Many of the kind have been around for a long time and overstretch. Typically, their end is abrupt, either overthrown or passed away.
The situation in Iran is a perfect example. Within the next few weeks, the regime will either collapse or prevail and fast-forward to become a nuclear power. Both scenarios will have intended and unintended consequences for Iran’s allies and foes alike. Capital markets are not very reliable in efficiently pricing in dramatic unpredictability. They do, however, adapt suddenly and radically with high volatility and price spikes.
Declines, Deficits, Debts
The global economic and capital market cycle is on a downward trajectory and, given the US’ ongoing war on trade and tariffs, can get a lot worse. Add Trump’s fiscally irresponsible Big Beautiful Bill to an already stretched US fiscal position and watch the value of US debt and dollar erode.
Financial history tells us that policymakers almost never restore healthy public finances but capital markets do. Just remember the Swedish 1990-1994 financial crisis or the Greek 2011 debt crisis. If you are in search of a safe haven investment don’t go for US Treasuries but German Bunds or cash in your reference currency.
Complacency Breeds Complacency
Be aware – the relative calm of capital markets measured by price and volatility data reflects by no means the current geoeconomic turmoil. Something will have to give and our view is that investors will be shaken out of their complacency rather sooner than later. Political leaders and investors alike must have clear objectives, strategies and planned exits, to avoid disasters and defeats.
In times of uncertainty, fear and crisis investment behavior will gear towards home bias, focus on secular investment themes such as the industrial-military space and a flight to quality and safety. We are convinced investors are best served to focus on their home region and currency – for 2025 and beyond.
