The Challenge to Investors

Challenge Overview

In this video, Inigo Fraser-Jenkins discusses why a generational shift in geopolitics is one of the challenges identified in The Book 2025 Edition.

The challenges we describe are coalescing at a time when another imposing change is happening—a massive shift in the global geopolitical order.

Markets have historically found it hard to price geopolitical risk, and investors face several categories of recency biases. Most of The Book is concerned with the recency bias of the post-1980s era of high levels of real returns. However, there is another recency bias that has been imprinted by 80 years of a US-led post-war order; the impact of the abrupt unravelling of this order is very hard for markets to pin down.

Given the difficulty in pricing geopolitical risk, it would probably be wrong from a forecasting point of view to let it dominate a return view, and it doesn’t enter our forecast for long-term equity returns. Nevertheless, geopolitics do bring an extra source of substantial uncertainty. Alongside AI and climate change, it introduces a need to consider a much broader range of possible future paths—and should be an area of both concern and vigilance for long-term asset allocators.