Geopolitics

The odds of a near-term US-Iran deal have gone up slightly, but the odds of a Russian provocation that divides NATO have also gone up. 

In this month’s Beta Report, we assess what that structural tension means for investors under two distinct scenarios. In our base case – a multipolar world order – Australia's position turns out to be more advantageous than it appears. The great power capital expenditure race generates demand for precisely what Australia produces. In the tail risk – a hard bipolar rupture – the calculus inverts, and the same commodity dependencies that long appeared as structural strengths begin to look like structural liabilities.

The tenuous ceasefire holds, with the "new geopolitical equilibrium scenario" remaining in place. Enough crude trickles through Hormuz to avert a global recession, but not to alleviate building inflationary pressures, a product of a complicated geomacro context that is not transitory. The Fed will look to ignore these in the short term, fueling the equity rally in the US. Chinese equities may pop thanks to the upcoming détente. When does it all end? Beware of major IPOs! 

The dollar’s pullback masks a quiet improvement in its cyclical backdrop, with growth, monetary policy, and flows turning in its favor. As markets fully price out geopolitical risk, the USD should decouple from oil and better reflect these gains, despite lingering structural headwinds.

In this screener report, we explore opportunities in nuclear theme, geopolitical hedge, and winners from AI productivity boom.