In this piece, Nico Katzke (Head of Portfolio Solutions at Satrix*) covers some of the key investment themes that are playing out in this geopolitical environment.

The global investment landscape is undergoing a seismic shift, shaped by geopolitical tensions, trade frictions, and policy uncertainty. The post-war economic order, once a symbol of stability, now appears fragile. Investors face the challenge of navigating a world where traditional assumptions about safety and opportunity are being disrupted.

The key question arises: How can investors future-proof their portfolios in such a world? As uncertainty abounds, the value of sensible, risk-conscious diversification remains as certain as ever.

The Fragile Global Economic Framework 

The post-war economic structure, long considered stable, is under strain. Trade negotiations have exposed vulnerabilities, and the Trump administration’s protectionist “America First” policy has created great uncertainty. Historically, US Treasuries were considered a safe haven due to their liquidity and security. However, Trump-inspired protectionist policies aimed at both allies and adversaries alike may serve to severely undermine this perceived stability.

This may, in turn, drive investors to continue allocating to other assets like gold, which offers both safety and liquidity. This reallocation could very well become reinforcing – pushing up yields and US debt servicing costs, making US treasuries riskier. This then creates ripple effects across equity markets, inflation, and consumer demand. It turns out that policy does not happen in a silo, even if set by the world’s largest economy – and weaponising one’s policy framework may do more harm than good.

The Rise of Scarce Assets

In this context, scarce assets like gold are gaining prominence, with rising prices reflecting investor anxiety. Gold’s ability to hedge against inflation and geopolitical risk is becoming more apparent. The demand for a safe-haven alternative to US treasuries has seen the price of gold reach all-time highs this year – with few analysts willing to bet that we’ve seen the ceiling reached just yet.

Growth Potential in Tech 

Meanwhile, AI (Artificial Intelligence) has emerged as a key disruptor for traditional views on corporate earnings, efficiency and economic growth. As AI adoption accelerates, broader economic efficiency increases, making US tech equities attractive despite caution about valuations. 

One often overlooked factor is the growth potential of tech companies. Unlike the dot-com bubble that many are trying to draw parallels to, companies at the forefront of AI development are mostly well-established with vast cash reserves. Even if only partially achieving some of the loftier earnings projections, their current valuations may appear undervalued in hindsight, even though their price-to-earnings ratios seem high today. Our broadly accepted models for valuations today are arguably incapable of measuring the true valuation of an industry still in its adoptive phase – making the argument for stretched valuations less convincing than would otherwise be the case.

Fixed Income Outlook in a Volatile World 

The global fixed-income outlook is characterised by a persistent fear of returning inflation, with duration risk remaining stubbornly high. Policy uncertainty, which is the order of the day, further makes this asset class seem like a risk not worth taking. The US Federal Reserve’s cautious stance suggests that rates will likely remain somewhat elevated. This favours short- and mid-duration bonds, particularly higher yielding high-quality corporate credit. However, the traditional role of bonds as portfolio stabilisers is being challenged, as high and positive stock-bond correlations force investors to look beyond conventional fixed income instruments for diversification.

This shift is driving interest in alternatives such as gold, inflation-linked bonds, and market-neutral strategies. 

Don’t write off the US… yet

Much noise has been made about the havoc wreaked this year by unclear and erratic policy decision making in the world’s largest economy. The Trump administration has confidently embarked on a dangerous game of rhetorical improvisation when it comes to trade policy, economic growth and even delicate geopolitical matters – virtually all with little to no clear wins so far. Yet one cannot write-off the (often labelled expensive) US equity market just yet. While Trump’s dealmaking capability and negotiating leverage may not be as decidedly powerful as his ardent supporters believed, the current US administration makes policy decisions very much with the market in mind.

While the Fed has failed to bow to political pressure (up to now), the government still has considerable fiscal and regulatory stimuli that it can fall back on – especially considering the blind obedience both houses of congress show to Trump. You can be sure that the administration will do whatever it can to buoy up equity markets by providing stimulus to get runs on the board, without much regard for the long-term impact of such measures. In fact, one might argue that getting a W for T arguably matters more than the long-term viability of anything done by this administration.

Emerging Markets: A Tactical Opportunity 

Emerging markets (EM) present both risks and opportunities in this uncertain environment. While EM assets have lagged developed markets consistently for over a decade, there are compelling reasons for tactical allocations to this cohort currently. Regions like Latin America, the Middle East, and India are benefitting from shifting global supply chains and geopolitical tensions. For example, Mexico has surpassed China as the US’s largest trading partner. 

In Asia, China’s growth is stabilising at 4.5 – 5%, presenting opportunities, especially in the tech sector. The risk remains, of course, that the perennial bridesmaid to developed market regions underperforms; but with a resetting of the global order, a well-diversified regional positioning on global equities seems a logical choice.

Re-Globalisation and Trade Frictions 

Trade frictions are accelerating trends of global supply chain fragmentation, leading to a re-globalisation of trade. This creates both winners and losers. Countries like India and the UK are poised to benefit from more resilient supply chains. For investors, this means focusing on assets that can withstand inflation, like US Treasury Inflation-Protected Securities (TIPS), and identifying regions and sectors that are less vulnerable to tariff pressures but are thriving in a fragmented global economy. 

Building a Future-Proof Portfolio 

Constructing a future-proof portfolio requires a nuanced approach, balancing safety with growth opportunities. After all, even in uncertain times, the greatest risk that a long-term investor can take is not taking enough well-rewarded risk. Risk-conscious investors could consider diversifying beyond traditional stock-bond allocations to include scarce assets, inflation-linked bonds, and alternative diversifiers. The choice, however, could be a daunting one.

An easy and cost-effective solution could be global balanced funds, like the Satrix Global Balanced Fund of Funds ETF, which offers diversified exposure to global assets in a low-cost portfolio, simplifying portfolio construction in today’s complex market environment. 

The Rise of the Sophisticated Index Investor 

The rise of exchange traded funds (ETFs) has been driven by their cost-effectiveness and diversification benefits. However, a notable trend is the emergence of the “sophisticated index investor.”

These investors use ETFs not only as index-tracking instruments but also as precise building blocks to express market views and enhance portfolio efficiency. Much like Lego blocks – while simple and transparent in their design, ETFs placed together in the right combination can produce a sophisticated portfolio. The main benefit is that investors know what they get and, crucially what they pay as well.

Embracing Uncertainty 

While the investment landscape is uncertain, it also presents opportunities for those that remain invested. Understanding the structural forces – such as the rise of AI, the fragmentation of global supply chains, and the shifting role of traditional safe havens – can position investors for success. Periodic risk is what explains the payoff for investing in risky assets – if there was no risk, there’d be limited reward. The key is to diversify thoughtfully and embrace strategies that help navigate the complexities of the market. 

As we move into 2025 and beyond, consistency will define successful investing. Though the world may be topsy-turvy today, a well-balanced approach will allow investors to turn uncertainty into opportunity. By leveraging low-cost index strategies, investors stack the odds in their favour by building resilient portfolios poised for growth. 

**Based on the recent Satrix IndexMore Discussion on Navigating Investment Trends 

*Satrix is a division of Sanlam Investment Management

Disclaimer

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