Sheryl Sutherland introduces the big geopolitical landscape as an overlay to investment and investing decisions

By Sheryl Sutherland*

"Man is by nature a political animal." - Aristotle

One of the points of discussion I always have with clients is geopolitics. Tim Marshall - the Foreign & Diplomatic Editor for Sky News, and author of several books on how geography shapes our world - has interesting views on the importance of geopolitics and how they change the world. His views align with mine (confirmation bias) but are more elegantly expressed.

Marshall points out that all countries are constrained by mountains, rivers, seas and concrete. Changes in mapping reflect the dominant political powers of the time. When I grew up, the world had Europe, more especially the UK, at the centre. Europe was then the centre of economics, diplomacy and military. As we know, times change. The centre has moved from Europe; with the Indo-Pacific region, particularly China and the US, the focus of attention.

As we know, 2024 is an interesting year for elections. Taiwan did not please China, Russia’s farce will have pleased Putin however. A recent report from the V-Dem Institute at Sweden’s University of Gothenberg assessed 35 countries as continuing a decline in free and fair elections; in 2019, the number was 19. In India, Modi’s party of Hindu Nationalists look set to tighten and already outsized grip on power. Some 91% of the world’s population now live in autocracies – up from 45% just a decade ago. 

Marshall’s view is that, given these changes, we are moving away from a multi-polar world represented by NATO and its alliances, to the type of bi-polar world of 1945-1989 with the then dominance of US and Russia; US at the height of its power by the early 1990s.This had shifted by 2010, with new players on the global stage.  A multi-polar world is much harder to understand, therefore more complex when it comes to investing. Marshall suggests that, for example, we can see Saudi Arabia free to play China off against America; Turkey, a NATO ally, buying its missile defence system from Moscow. There are dozens of examples of this fluidity. The strength of China and the US will see us move back to a binary world.  So how will the US and China fare?

China has a wall in front of it. The US has broad support - the Seventh Fleet in the Bay of Tokyo, around 25,000 troops in Okinawa and 30,000 troops in South Korea, Taiwan bristles with American weapons and the Philippines has recently granted the US rights to establish bases there. China is an exporting country, no-one is going to blockade it, but that fact is that they could. Taiwan is the biggest problem here. Marshall suggests that invasion is equally as unlikely, but it’s not these considerations that are of primary importance. A war in the South China Sea would bring a severe world-wide depression. It’s unlikely therefore that a country with a declining GDP, economic problems, weakening demographics and world-wide competitors would risk that.

“This is all very gloomy” I hear you say, “how can I invest to take these considerations into account?” When investing, it is important to assess opportunities through both a macro and a micro lens. Navigating the possibilities around the effects of cross-border disputes and election results is as important as analysing individual companies. The broad view is the best starting point.

It won’t surprise you to know that I have some suggestions. They’re not, unfortunately, failsafe conclusions – my crystal ball is away for repairs. Read my next epistle for further information.

*Sheryl Sutherland is director of The Financial Strategies Group, and author of Girls Just Want to Have Fund$ – Every Women’s Guide to Financial Independence, Money, Money, Money Ain’t it Funny – How to Wire your Brain for Wealth, and co-author of Smart Money – How to structure your New Zealand business or investments and pay less tax. You can contact her here.