The Gulf states have been crucial to the global economy ever since the first oil shock in 1974 broke the post-war monetary system and ushered in an era of high inflation. With the world's biggest concentrations of oil and gas in Saudi Arabia, Iran, Iraq, Kuwait and Qatar, and with producers locked into the Opec oil-exporters cartel, which could switch supplies on and off at will, the region held the world's energy supplies in its hands. That gave its rulers immense power and the wealth to buy up a vast range of assets. Interest rates, equity prices and inflation all over the globe were often determined by events in that one small region of the world. It mattered.

That looks to have changed. As the US and Israel attacked Iran, there were plenty of dire warnings that the oil price would go to $150 a barrel, or perhaps even $200. Flights would have to be cancelled as we ran short of jet fuel; petrol would have to be rationed. The closure of shipping lanes would send chemical and fertiliser prices soaring, triggering food shortages and factory closures. The global economy would be plunged into recession. Central banks started to consider an emergency response.

In the event, none of that happened. The price of oil did go up sharply, rising from $60 a barrel to close to $120 shortly after the conflict started. But rather than spiralling out of control, it steadied and then started to fall again, dropping below $80 as Iran and the US agreed a 60-day ceasefire at the start of this week. There is little sign of food shortages, or any basic commodities running low, and there are still plenty of cheap flights available. Most of the European economies are sluggish, but that is for a whole host of reasons. They have not collapsed and the US is still doing well, with strong growth, plenty of new jobs and the stock market hitting record highs. Inflation has ticked up a little, but should come back down again as the price of oil falls.

In reality, the Gulf states just do not matter as much as they used to. There are three big reasons for that. To start with, there is a lot more oil in the world than there used to be. Despite all the catastrophic warnings during the 1980s and 1990s that the world would have run out of the stuff by now, there seems to be more of it than ever. The US has turned itself into both the largest producer and net exporter of oil in the world, largely because of fracking. Despite all the fear-mongering, more countries, such as Argentina and Mexico, are developing their own shale oil and gas reserves. After the US strikes on the country, Venezuela will start to restore its oil fields and it has the largest reserves in the world. Far from running out, there will soon be too much oil. The Gulf can't hold the world to ransom when the global market is awash with oil.

Why the Gulf states' money is no longer so important

Second, alternative energy is rising in importance all the time. We can all debate whether the drive to achieve net-zero is too rapid, but there is no turning back the clock to the fossil-fuel era now. China's huge electric-vehicle industry is not going to disappear, and most open car markets will be electric within a decade or so. Renewables account for 45% of electricity generation across the EU and already for 25% in the US, the world's largest economy (and that share is rising fast, with solar last month overtaking coal as a source of power). Oil is a shrinking market.

Finally, Gulf states' money is no longer so important. Dubai and Qatar will take time to recover from the bombing campaign launched by Iran. A lot of money invested around the world will have to be brought home to pay for reconstruction and cover losses. The region's wealth funds won't be splashing billions on trophy assets as have done for the last 20 years. In a world where Wall Street is minting space- and AI trillionaires, there is a lot of spare capital around. The Gulf states won't matter so much. Add it all up and one point is clear. The main lesson from the Iran war is that the Gulf states' influence has evaporated. They are part of a small region, which no longer matters very much except to the people who live there. Investors will still have plenty of things to worry about – but the Gulf states and their oil resources can be dropped from the list.

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What's happening at the World Cup?

It's not merely the geopolitics of this football World Cup – taking place in the US, Canada and Mexico – that are truly unprecedented. The main host nation, the US, is at war with a participant country, Iran, whose players must enter and leave US territory on the same day for their matches; one host country recently threatened to annexe another; a highly regarded referee was ejected from US territory for the crime of being Somali; and citizens of four competing nations are banned from the US. Meanwhile, the bellicose US president was recently awarded with a newly invented “peace prize” by football's governing body, FIFA.

The economics of this World Cup are the “craziest” ever, too, says Faisal Islam for the BBC. The three co-hosts are in the midst of an “epic trade war”. Between last week's kick-off at the Estadio Azteca, and the final on 19 July at New Jersey's MetLife Stadium, the three will be renegotiating their trilateral USMCA free-trade deal.

Why is this World Cup unusual?

On the footballing front, the fact that the breakout star of the tournament so far is Cape Verde's 40-year-old goalkeeper is pretty astonishing. So, too, is the fact that FIFA has allowed football's structure – this is the archetypal game of two halves – to be watered down by compulsory “hydration breaks”, regardless of the weather. Footballers can already access water as needed. But the unprecedented breaks, which allow broadcasters to sell another three minutes of advertising mid-game, have turned World Cup matches into games of four quarters, with coaches and teams now having three chances to regroup and reset. But perhaps most astonishing of all are the gob-smacking ticket prices.

How expensive is a World Cup ticket?

The official prices, not those charged by touts (or “scalpers”), are astronomical. For the final at the MetLife stadium in New Jersey on 19 July, official prices are around $2,030-$6,730, but later sales phases and “dynamic pricing” surges pushed some final tickets as high as $10,990 – with secondary markets offering tickets at multiples of that. Even quite ordinary seats have sold for between $3,000 and $7,000, and the least attractive seats for more than $2,000. For the more attractive group games (featuring the big European and South American teams, or host nations), a rough typical price is $1,000, and as high as $2,700. Even the “bargain” prices, for a non-prestige group-stage match, are typically several hundred dollars.

Why are World Cup tickets priced so high?

“The fans are being squeezed like never before because this is a very different tournament economic model to what has gone before,” says Faisal Islam. In previous World Cups, part of the economic rationale for hosting was to help catalyse spending on new infrastructure, including on transport links and stadiums. This time, most of the games are taking place in rented American football (NFL) stadiums and FIFA has essentially adopted NFL economics, meaning that “seat pricing is designed for yield management” – and “revenue maximisation is prized above the act of selling out the stadium”. Throughout the World Cup's history, organisers have tried to keep ticket prices at a level ordinary fans can afford and coped with the massive excess demand via lottery distribution. Broadcasting and sponsorship rights were a vastly more lucrative source of revenue.

Economics of the 2026 World Cup

This time, ticket sales and hospitality are projected to count for almost as much revenue. For the first time, FIFA has taken direct control of ticketing, rather than outsourcing to local organisers, and has attempted to incorporate and exploit the secondary market by – in effect – acting as its own tout. This time, ticket holders are free to sell their tickets on an officially sanctioned marketplace, but FIFA takes a 30% cut (15% each from seller and buyer; a nice model). They have also embraced so-called “dynamic pricing”, where ticket prices rise (and fall) in line with demand, and where many customers complain they don't know how much they are paying, and for precisely what, until the deal is confirmed.

Is all this legit?

Not everyone is convinced. “FIFA has turned buying a ticket to the World Cup into a gauntlet of confusion, fake scarcity and impossibly high prices – all at the expense of consumers,” says Jennifer Davenport, the attorney-general of New Jersey. Both New Jersey, where the final takes place, and neighbouring New York, have launched formal investigations into potential skulduggery. Yet the model is certainly lucrative. Richard Sheehan, economics professor and sports finance expert at the University of Notre Dame, writing in The Conversation, predicts the total ticket and hospitality revenue for this year's tournament could top $14 billion, more than double the amount from the Qatar World Cup in 2022, which hit $6.6 billion. There are more games this time (48 teams rather than 32), but Sheehan projects revenue per game will rise from $14.5 million to at least $30 million.

What are the economic benefits of the 2026 World Cup?

FIFA projects the US economy will be among the winners from the event with a $17 billion boost in US GDP and 185,000 jobs created. But most analysts reckon any macroeconomic impacts will be marginal. That $17 billion is a short-term 0.05% boost to US GDP and it's likely that the World Cup will crowd out other kinds of tourism, with ordinary visitors eager to avoid price hikes on everything from hotel rooms to transport. Even the benefits for host cities are far from clear-cut, says Marni Rose McFall in Newsweek. City authorities are on the hook for logistics, transport, sanitation, security and policing, and other costs involved in staging multiple games across several weeks – hence the giant price hikes on transport to and from stadiums. But research, including a new report from insurance company Atradius, shows that most World Cups cost host cities more than they bring in. “FIFA collects most of the revenue, host cities absorb much of the risk.” The beautiful game is more bountiful than ever.

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It is an audacious bid. Through his hedge fund Pershing Square, Bill Ackman has offered $64 billion for Universal Music, one of the largest music conglomerates in the world and a producer for artists including Taylor Swift.

It is a complex deal involving both cash and shares and would move the company's listing from Amsterdam to New York.

It remains to be seen whether the deal is successful or not. The decision will probably rest with French billionaire Vincent Bolloré, who controls 18% of the company, and on its British chief executive Lucian Grainge, who is widely credited with managing the transition from analogue to digital music. Predictions markets are giving the bid a 37% chance of success by 30 June.

It is far from the only recent media megadeal. After a battle with Netflix, Paramount Skydance, which is controlled and financed by the Ellison family, has agreed to pay more than $100 billion for Warner Bros, the studio that controls a huge library of films, along with news channel CNN and sports broadcaster TNT. It still needs regulatory approval in the markets where it operates, but the deal is agreed, and there is little to stop it from happening now.

Investors are betting against AI slop

There is a common theme to both major bids. Huge sums of money are being wagered on the proposition that the arts will still be created and controlled by humans. That goes against the hype in the rest of the market.

We have read huge amounts about the rise of AI and the vast sums being poured into the software and data centres that will power super-smart chatbots. The leading companies in the sector, such as OpenAI and Anthropic, may well be worth more than $1 trillion if they list their shares later this year, while established giants such as Google, Meta and Elon Musk's X have been pouring fortunes into developing their own systems.

The creative industries are meant to be right in the firing line to be replaced by AI. The bots are good at generating music tracks that can be surprisingly popular. There have been plenty of AI-generated songs that have topped the streaming charts, and the likes of ChatGPT and Google Gemini offer music-generating tools. It is not hard to choose a genre, come up with a theme, and then upload a track onto Spotify or Google Music. It can be very lucrative.

Likewise, AI actors can replace real ones, and the same is true of scriptwriters, technicians and directors. Indeed, Netflix last month paid $600 million for InterPositive, an AI start-up developing post-production tools for the film industry, backed by the actor Ben Affleck. There are already reports of AI helping with scripts, and it may not be long before the bots are up on the big screen.

So why would anyone in their right mind want to pay tens of billions for a film studio or a music label? After all, there is not much value in a studio if films can be created by anyone with a laptop and a subscription to ChatGPT or Claude AI.

Conventional wisdom says the world will soon be flooded with AI slop – films of every conceivable genre, written for you, directed in any style you choose, and acted by AI-generated bots, or else by digitally recreated megastars from the past. Every taste will be catered to, and it may not be long before you can choose from a range of plot twists or endings depending on your personal taste. Traditional films will be finished.

Likewise, the streaming apps will also soon be flooded with AI slop – Taylor Swift knockoffs, along with tracks from every possible musical style, from classical to jazz to soul. We will all be able to create our own personal track-lists, made up of a mash-up of styles, singers and musicians precisely tailored to our own tastes or mood.

AI slop cannot create anything new

Well, perhaps. Yet the billionaire bidders for Warner and Universal are clearly on to something. In the end, human creativity will survive. The chatbots can recreate plots or tunes that already exist, study the libraries and rustle up a reasonable facsimile. But they can't create anything new; they don't have personality, they don't have any insight into our feelings, and they are never going to be able to make us laugh, cry or dance.

The chatbots might change the way industries function, but they are unlikely to destroy them. Investors are pouring huge sums of money into AI start-ups, confident that the systems will be able to replace just about any form of human endeavour.

Some of the world's richest people are betting the other way – against the triumph of AI slop. So should ordinary investors.

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Gulf states’ money has been hard to escape over the past few years. The influence of the United Arab Emirates, Saudi Arabia and Bahrain was everywhere. Saudi Arabia was a huge investor in sport and gaming as well as in infrastructure. Qatar was one of the key backers of Anthropic, the company behind Claude AI, the key rival to ChatGPT, as well as backing data centres. The takeover of Warner Brothers by Paramount was financed, in a large measure, by money from Saudi Arabia, Qatar and Abu Dhabi.

The list goes on. Whenever there was a big deal, a takeover, a venture-capital round or a new listing, Gulf states’ money was central to it. That was just what was reported. Through investment in private equity, hedge funds and property, there was probably far more than could easily be tracked. The Persian Gulf was also a major source of demand. Airbus would not be nearly so successful without all the new aircraft ordered from Gulf-state mega-carriers such as Emirates and Qatar Airlines. London's law firms, consultants, architects and engineers made huge sums selling their services into the region. One way or another, Gulf states' money became critical to the global economy.

It may be about to dry up. The Gulf states did not start the war against Iran, but they may well end up as its main victims. The Iranians have targeted them all with drone strikes and they have already done substantial damage. Worse, they have sullied the region's image. Not many people will want to fly through Gulf airports on their way to Asia when there are other routes available. Jobs in Dubai will look a lot less tempting, even if they are tax-free; and a holiday there won't tempt many of us, even if the hotels are luxurious and the sunshine guaranteed. Oil and gas revenues will start to disappear as critical infrastructure is damaged and shipping routes shut. The costs of reconstruction will be huge. The war is going to prove very expensive for all the Gulf states.

And it is not as if they were in great financial shape to start with. Saudi Arabia ran a budget deficit of more than 5% of GDP last year; Qatar and Bahrain also ran deficits. Taxes have started to be introduced across the region to make up some of the shortfall. The UAE introduced a 9% corporate tax in 2023; Bahrain is planning to introduce one at 10%. Taxes are still very low by the standards of the major Western economies, but even so they were starting to creep up – a sure sign governments were under financial pressure. With the costs of the war, that is only going to increase.

One point is certain: the huge flows of Gulf money cascading into the global financial system are going to dry up. Very soon, they may start to return home. Assets will have to be sold to pay for all the costs. It probably won't happen immediately – the huge portfolios are too well-managed to start a fire-sale. But over the next few months, plenty of Gulf-owned portfolios may start to be quietly put on the market.

Gulf states’ money is sailing out of markets

That will pose a threat to the global financial system. To start with, IPOs will be harder. Some huge new listings were planned for this year, such as SpaceX and OpenAI, along with plenty of smaller ones. And yet, the valuations depended on Gulf funds buying up lots of shares. If that money is not available, many of those will have to be postponed, or the sellers will have to accept a lower price.

Trophy assets will be stranded. Football clubs, for example, were sold from one Gulf buyer to another, and so were media properties and skyscrapers. Owning them came with a lot of prestige, and that counted for a lot in the Persian Gulf. If those buyers are not around there will be no one to replace them.

Finally, illiquid assets such as private-equity funds will be under huge pressure. The Persian Gulf was one of the main sources of fresh money. As that dries up, they will find it very hard to access fresh funds and may face a wave of redemptions. Private-equity funds could turn into forced sellers quickly.

The reality is that the Gulf money machine was one of the key drivers of the bull market of the past five years. There was always more cash to pour into whatever the latest fad happened to be or to finance a huge takeover deal. It was the key source of risk capital. It is about to disappear – and that means it will be far harder to raise investment or to keep valuations as high as they have been.

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How is Russia's economy doing?

Before the Iran war oil shock – meaning a jump in oil prices and a jump in revenues for the Kremlin – things were looking as bad as they have done since Russia's invasion of Ukraine in February 2022.

At that time, many Western politicians and economists expected Russia's economy to collapse under the pressure of sanctions and fiscal implosion. “The Russian economy is on track to be cut in half,” said then US president Joe Biden a month into the war. “It was ranked the 11th biggest economy in the world before this invasion – and soon it will not even rank among the top 20.”

How wrong was Joe Biden about Russia?

Very wrong. By 2025, Russia had nudged up the table to become the ninth biggest economy globally, overtaking Canada and Brazil, and lying just behind the UK, France and Italy. In response to sanctions, Russia ramped up state spending on its war machine, driving an unlikely economic mini-boom, and predictions of collapse proved wide of the mark.

A shallow recession of 1.4% in 2022 was followed by solid positive growth in 2023-2024, partly facilitated by high oil prices and partly fuelled by the rise in war-related spending and corporate credit growth. The fiscal position deteriorated, but remained in relatively safe territory, while a consistent current-account surplus “helped soften the impact of approximately half of Russia's international reserves being immobilised”, explains Marek Dabrowski of the Bruegel think tank. All told, the post-2022 Russian economy demonstrated striking resilience.

How is Russia's economy so resilient?

Essentially, Russia has resources and products that other countries want to buy. If the price is right that trade will happen, albeit with Russian oil and gas trading at a discount to pre-war prices. Western sanctions, which have in any event been supported by nations making up less than half the world's economy, were too telegraphed, slow, and easy to circumvent via third countries, given the weak enforcement of secondary sanctions. And China's role in ramping up Russian imports and exports was crucial: it has taken the place of Europe as Russia's biggest trading partner.

Second, the Russian regime was ready for war. It had planned for sanctions for years, stockpiling dollars, and when the crunch came it forced many foreign companies to sell their Russian entities at low prices. And third, the de facto creation of a war economy has not only fuelled growth, but also entrenched a network of supporters of the regime among the business class.

Is Russia's economy a war economy?

Over the past four years, Russia's economy has been growing, but only because civilian industry has been “progressively cannibalised” to feed dramatically ramped-up military production, say Emma Sage and Savannah Taylor on War on the Rocks. Germany's foreign intelligence believes that the war accounts for 10% of GDP and for more than 50% of government spending. Russia's Centre for Macroeconomic Analysis and Short-Term Forecasting attributes 60%-65% of Russia's increased industrial output from 2022-2024 to the sectors most implicated in the war on Ukraine, while showing that unrelated industries are declining. Meanwhile, domestic consumption is underpinned by Smertonomika, or “Deathonomics”, whereby wages for soldiers willing to brave the war – and compensation payouts to their families when they are killed – have soared. Pay for soldiers is six times what it was in 2022, while death payouts have risen to the equivalent of $130,000-$180,000 – more than the expected life earnings of many of the young men who die. In short, Russia has mortgaged its future to pay for the war. Eventually, that will have to be repaid.

What is the current situation in Russia?

Stagnation has set in and the government is $320 billion in debt. Growth fell sharply last year from 4% in 2024 to less than 1% in the fourth quarter of 2025. This week Russia's president, Vladimir Putin, announced that GDP declined 2.1% in the year to January, with industrial production also falling by 0.8%, even as unemployment remained low at 2.2%, while inflation stood at below 6%. Many Western analysts suspect the reality is worse. The economy will not collapse, says Alexandra Prokopenko in The Economist. “But nor will it recover. It has entered what mountaineers call the death zone: the altitude above 8,000 metres at which the human body consumes itself faster than it can be repaired.” Russia is sustaining a “negative equilibrium”: it has the ability to hold itself together at the cost of steadily destroying its own future capacity. Export revenues are falling and economic weakness means budget gaps cannot be filled with additional tax revenues.

Will the Iran war rescue Russia's economy?

Obviously no one knows how long the oil price will remain elevated from its pre-war levels. But Putin himself – sometimes touted in recent weeks as the “real winner” of the conflict – isn't exactly celebrating the dawn of a free-spending new paradigm. This week, he called on oil and gas companies to use additional revenues from the current rise in global hydrocarbon prices to reduce their debt burden and repay obligations to domestic banks. Clearly, Russia is a beneficiary of the conflict in the Persian Gulf and Middle East, with higher prices and (perhaps) higher export volumes to Asia able to narrow its budget deficit. “But unless disruption to global energy supplies is prolonged, this is unlikely to materially alter Russia's macroeconomic outlook,” says Liam Peach of Capital Economics. The country will remain a war-driven, low-growth, low-productivity economy that's dependent on hydrocarbons – a waning resource in the long run – and under chronic fiscal pressure. “Russia can probably continue waging war for the foreseeable future,” says Prokopenko. “But no climber can survive the death zone indefinitely – and not all climbers who attempt the descent survive it.”

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What's happened in the war on Iran?

The US-Israeli war on Iran, and Iran's military response – and the de facto closure of the critical Strait of Hormuz chokepoint – have shaken financial markets across the world. The war has sent oil and gas prices soaring and stocks falling (unless you're a big oil company; Shell hit record highs) and shaken up expectations of future growth (down), inflation (up) and interest rates (up). In the UK, consumers saw fuel prices jump and mortgage lenders scrambling to pull fixed-rate offers, while wholesale gas prices surged by two-thirds – soon to feed through into higher domestic bills. Even if the conflict remains relatively contained, it is already bad news for the global economy and will affect different regions in different ways, with net energy importers (such as the UK and Europe, and much of Asia) hit worse than net exporters (such as the US).

Why is the Strait of Hormuz so important?

The Persian Gulf and its immediately adjoining lands contain the world's greatest abundance of hydrocarbons and four of the world's five biggest oil fields (in Saudi Arabia, Kuwait and Iran) ship their product out through this narrow stretch of water. According to trade analysis firm Kpler, 31% of crude oil passed through Hormuz last year, along with 34% of global fertiliser supply and 32% of methanol, for example. The Strait's closure caused wild gyrations in the oil price this week. There were double-digit surges and falls according to events and to the latest capricious musing from the US president about his take on the war.

What about gas?

Arguably of even more pressing interest to the UK is the fact that 24% of natural-gas liquids and 19% of liquefied natural gas (LNG) also passes through the strait. Britain is at the start of a historic shift from reliance on domestic and Norwegian gas to far greater imports of Qatari gas (that is, from within the Persian Gulf, projected to make up a bigger chunk of the mix than North Sea gas by 2035). Prices of petrol and diesel have nudged up at the pumps, but wholesale gas prices are up around 60%, and will soon be feeding through into household bills and business costs. Nor is it just hydrocarbons and related products, says Neil Shearing on Capital Economics. Crises such as this have a habit of revealing chokepoints that were previously hidden. Qatar produces 40% of the world's helium, for example, crucial to the production of semiconductors.

Which economy will be worst affected?

The Middle East itself will be worst hit economically, as well as in lives lost and communities destroyed. During the 12-day war last summer, Israel's economy contracted by around 1% in the second quarter. If the present conflict is short-lived, a fall in output of a similar order of magnitude would seem plausible for both Israel and the Gulf economies. Iran itself might expect a fall in GDP of 10%. Otherwise, the region most exposed is the world's biggest growth engine, Asia. The Gulf supplies 40%-80% of the seaborne crude imports of China, India, Japan and South Korea, notes The Economist. It also accounts for nearly a third of China's LNG imports, more than half of India's and even more for some smaller Asian countries. Last year, 87% of the crude and 86% of the LNG passing through the Strait of Hormuz went to Asia, making any prolonged closure a grave threat to the region.

Will global GDP fall due to the war on Iran?

Yes, but unless the conflict spirals into a wider regional war in which oil supplies are severely disrupted for a prolonged period, then most forecasts cluster around a moderate global slowdown (of less than 1% of global GDP) rather than a catastrophic collapse. But the situation is extremely hard to predict. In the event of (say) a months-long closure of the Strait of Hormuz, major damage to Gulf oil infrastructure and oil prices rising towards $150 – unlikely, but not impossible – analysts suggest a knock to global GDP of up to 3%. While oil-sector experts are panicking, macroeconomists remain relatively sanguine, says Paul Krugman on Substack.

Partly that's because the US and other major economies have changed greatly since the 1970s. “They have become much less dependent on oil, and they are probably much less prone to experiencing inflationary spirals in the aftermath of an oil-price shock.”

How long might the war on Iran last?

“My bet: longer than you would wish,” says Rana Faroohar in the Financial Times. While Donald Trump has reason to want a quick end to the conflict, given the lack of clear objectives and the political damage from rising petrol prices, the Iranian regime has “arguably much to gain by prolonging the pain with drone strikes and attacks on neighbours in the Gulf. These would further disrupt energy markets, driving inflation higher across the world”. As analyst Luke Gromen put it in a recent newsletter, “Iran does not have to defeat the US military; it just has to defeat the US Treasury market”.

What should we expect next?

As the experience of the Ukraine war showed us, “inflation is not a single punch”: it hits first in fuel, then in food and other consumer sectors. Meanwhile, China, easily the largest purchaser of Iranian oil, may yet “leverage its own geo-economic advantage of having purchased ports all over the world” and of “controlling most of the ships on the planet”. Higher shipping costs spell more inflationary pain. And potential bond-market weakness is made worse by more government and corporate bonds being held by short-term, price-sensitive investors than in the past. All this makes it easy to imagine a rapidly unfolding US and global markets crisis. If the longer-term impact of Trump's foreign adventures is to “push up bond yields, inflation (which will only be partially mitigated by America's own domestic energy supply) and US deficits and ultimately trigger a big Treasury sell-off, the US and global economy will suffer mightily. I suspect, sadly, that this war and this market story will be with us for some time”.

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It is not easy to say what the Iran crisis means for markets, not least because it changes hourly. I write this on Wednesday; by Friday, anything could have happened, as Monday's near-$30 swings in the oil price have shown.

The logical assumption is that the Iran crisis will pass and energy prices will fall back. This has been the pattern in Middle East upheaval for at least a couple of decades. In that case, there is not much to be gained from fretting about short-term swings. For most of the last two weeks, this has been the consensus among investors. Markets have been much calmer than you might predict, with a few exceptions, such as the pullback in Korea, which has been flying of late. Ignore the hyperbolic headlines about “tumbling” and “plummeting” on drops of 3% or so: stocks have not been panicking so far.

Still, we can think of cases where the impact did not pass quickly (eg, Russia's invasion of Ukraine and, indeed, various events in the Middle East longer ago). That scenario favours US markets and the US dollar over most of the rest of the world in the short term. The US has greater energy security – it is a net oil exporter, and high prices will encourage shale oil producers to boost output. This is already being reflected in markets: the dollar is slightly stronger and US stocks are performing better.

With that in mind, note that while non-US stocks beat the US last year, it was only in the US where earnings met expectations, points out Paul Niven of F&C Investment Trust (LSE: FCIT). Investors who have run up European shares are keen to see growth come through. The longer the crisis goes on, the less likely that is and the more scope for market setbacks.

Three reasons to fear the Iran crisis becoming a longer war

The obvious reason for optimism is that prolonged disruption to oil exports will benefit almost nobody. Yet if you want to be a pessimist, the three main participants may feel otherwise. Iran could have an incentive to maximise disruption this time because it will make the cost of attacking it again in future seem much higher. Israel might want to continue until Iran's government falls and its military capabilities are destroyed.

The US gains nothing from a protracted crisis that keeps oil prices high, but it seems to have started this fight without a clear plan for finishing it. Markets took Donald Trump's comments about the attack being “pretty much over” as reassuring, but perhaps they should have been spooked by clear signs of an erratic president who did not seem to be in command of the facts.

So the outcome is anybody's guess. All we can say is that the world keeps looking more volatile. There have always been financial shocks (“markets climb a wall of worry”, as the adage goes), but the key difference today is that the geopolitical framework in which we invest is becoming more less stable. One key implication of this is that inflation will be more volatile because supply chains are more easily disrupted. Inflation protection – real assets and stocks with pricing power – will be increasingly important.

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Where are the safe-haven assets in a crisis? The answer has rarely been murkier. Gold is the usual place to wait out market shocks, but it has struggled for direction since US-Israeli strikes began on Iran on 28 February.

Gold's problem is that it had already risen 20% this year, leaving it “overextended” heading into the conflict, says James Mackintosh in The Wall Street Journal. That made it “an obvious asset to sell” for traders looking to raise quick cash.

“It's hard to overstate just how unusual” trading has been during this war. When stocks fall, gold and bonds usually rise. This time all three assets have fallen, a historical rarity. Where else to hide? “Defensive” stocks (think utilities and consumer staples) usually outperform at times of market stress, says Niket Nishant for Reuters.

Not this time. European consumer staples fell 4.5% last week, worse than the 3% drop on the wider Stoxx 600 index. Traditional safe-haven currencies haven't fared any better. The Swiss franc and the Japanese yen both sold off as bombs dropped on Tehran.

So far, the only traditional safe-haven asset to have done its job is the US dollar, up nearly 2% against a basket of other currencies over the past month. That reflects the fact that as an energy-exporter the US is less exposed to oil shocks, but even this comes with an asterisk. Investors are loading up on “short-term dollar cash” but want nothing to do with long-term dollar assets such as US Treasury bonds, which also slid.

Gilts – traditional safe-haven assets – have been clobbered

UK gilts “suffered their worst week” since the 2022 pension fund debacle, says the Financial Times. Two-year German bonds had their worst week since 2023. That reflects two risks. Firstly, that higher energy costs will raise inflation and delay interest-rate cuts. Pricing shows that traders now put only a 50-50 chance on one Bank of England quarter-point rate cut before the end of the year, compared with the two cuts expected a few weeks ago.

Secondly, concern that a serious energy shock could pressure the Treasury to spend “billions of pounds in new support measures”. While all bonds have sold off, gilts have recently been underperforming French, German and US government paper, partly because the UK is especially dependent on imported energy. When investors took fright in March 2020, they thronged into US Treasuries (and other sovereign bonds) to wait out Covid, says Matt Zeigler in Panoptica Money.

But since then, the hierarchy of “safety assets” has been “fundamentally reordered”. The decisive event was the removal of key Russian banks from the SWIFT banking system in 2022. Holders of “surplus capital” in Asia and the Gulf realised that what “happened to Russia could happen to them”. They are now choosing to forego dollar-denominated assets such as Treasuries when choosing where to stash their wealth.

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Is Canada worried about Donald Trump?

Yes, Canada is very worried. The advent of Donald Trump’s second term as US president a year ago – accompanied by presidential threats about seeking to make Canada the 51st state – dramatically transformed Canadian politics. The poll ratings of the Conservatives, led by Trump-aligned Pierre Poilievre, slumped. And the Liberals, under their new leader Mark Carney – who campaigned on a platform of hard-headed patriotism and economic nous – surged to an unlikely victory in last April’s election. Just hours after winning his own mandate as PM, Carney delivered an extraordinary warning about how his nation’s powerful neighbour and long-time closest ally was becoming its greatest threat. “America wants our land, our resources, our water, our country,” he told supporters. “President Trump is trying to break us so that America can own us. That will never ever happen.”

How has US-Canada's relationship been?

Up and down, with signs of some grudging respect for Carney in the White House, and some accommodations by the Canadian PM that belie his more robust rhetoric. Tariffs have been imposed, and sometimes walked back. Economically, the worst has not happened. But there has been permanent strategic damage done, and no Nato member has been as assertive as Carney in standing up to Trump’s talk of hemispheric dominance and threats to his neighbours’ sovereignty. In the case of Canada, as in Greenland, that threat is real, not imagined. Last month, US Treasury secretary Scott Bessent encouraged the secessionist movement in the western resource-rich province of Alberta, saying the region should “come on down” and join the US – astonishing talk from a supposed ally. Last month in Davos, Carney won a rare standing ovation from politicians and business leaders after warning of a “rupture” in the world order, and pledged that Canada would take on “the world as it is, not wait around for a world as we wish it to be”.

How intertwined are US and Canada?

Exports account for a third of Canada’s GDP and more than 75% of them go south to the US. By contrast, exports account for about a tenth of America’s GDP, and only around 16% of them go north to Canada. So the imbalance and dependent relationship is stark. While Canada’s exports to the US account for about 25% of its economic output, the US’s exports to Canada make up a tiny sliver (roughly 1.6%) of its national GDP. Moreover, many of the two countries’ biggest industrial sectors, including automotive and energy, are “almost irreversibly interwoven”, says Emily Stewart in Business Insider. For that reason, Carney is treading an exceptionally fine and difficult line between standing up for Canada’s interests and making things worse by angering Trump. In some ways, a more economically assertive Canada has been necessary for a while. From Bush’s “You’re with us or against us” mentality post-9/11 to Obama’s “Buy America” push to Biden’s industrial policy, the US “has been acting like a less friendly friend for a while”, says Stewart. Under Trump, there’s been a radical shift – most recently with his threat of a 100% tariff on Canadian goods if Ottawa follows through on a trade deal with China in the face of US opposition.

How effective is Trump's tariff threat on Canada?

Currently, about 85% of Canada’s trade with the US is exempt from tariffs under the 2020 US-Canada-Mexico free-trade agreement, known as USMCA. Even so, Trump’s mercantilist trade policies have had a sharp impact on vital sectors of Canada’s economy, in particular the automotive industry, steel and aluminium, and softwood forestry – all of which have suffered significant job cuts as the result of US tariffs. The trade agreement is up for renegotiation later this year, adding to the peril for Canada. Understandably, the Carney government is now working at speed to cut its dependency on the US and boost trading ties with other nations. About three-quarters of Canada’s exports go to the US; the aim is to reduce this to half.

What is Canada doing to that end?

Carney has launched a “nation-building” infrastructure agenda, including high-speed rail and port expansions that will be used to transport abundant natural resources to new markets. In addition, his government has announced plans for more (small modular) nuclear reactors and wind power, a doubling of liquefied natural gas production and faster extraction of critical minerals. To that end, Ottawa is embracing a “more active industrial policy” alongside a streamlined bureaucracy to “try and direct the economy and reduce red tape”, says Ilya Gridneff in the Financial Times. Besides, Trump does not hold all the cards. Most of the oil imported by the US comes from Canada. Canada’s biggest export is oil and gas piped to US refineries through networks that would cost billions to replace. The USMCA is too successful to fail. And the second biggest export sector – cars, vehicle parts and metals – have been built into a cross-border supply chain since the 1960s.

Are markets worried?

They’re pretty sanguine. Fiscally, Canada is in reasonable shape. Royal Bank of Canada expects an overall budget deficit for this year of 3.3% of GDP, not excessive compared with the US’s near-6%. The Canadian dollar has strengthened against the US currency during Trump’s second term and the benchmark TSX Composite index has been hitting record highs – it’s up 30% over the past 12 months, almost twice as much as the S&P 500. The main reason, says Lex in the FT, is that about half of Canada’s stockmarket is accounted for by natural resources – where prices reflect global trends and which the US needs in large quantities – and finance, which is outside the tariff net. In the US, those sectors account for about 15% of the equity market. “Canada is my biggest overweight among developed markets,” says Marko Papic, a chief strategist at BCA Research. “Carney knows exactly what he’s doing.”

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What's going on between Greenland and the US?

No one is sure what is going on between Greenland and the US and many are too shocked to try and work it out. But the events of the past week look and sound awfully like the shattering of the 80-year-old Atlantic alliance. For having the temerity to oppose US annexation of Greenland – an autonomous Danish territory whose 60,000 or so residents are Danish and EU citizens – the US president announced 10% tariffs on eight European nations, including Denmark and the UK. By not accepting the need for US sovereignty over the world’s largest island, first settled by Norse explorers more than a millennium ago, America’s Nato allies had created “a very dangerous situation for the Safety, Security, and Survival of our Planet”, Trump wrote. He said the 10% import taxes would rise to 25% in June and continue “until such time as a Deal is reached for the Complete and Total purchase of Greenland”.

Is Greenland for sale?

No, Greenland is not for sale, but this is at least the fourth time Washington has tried to buy it, which is geographically part of North America. In 1868, US secretary of state William Seward pursued the acquisition of both Greenland and Iceland (which didn’t gain full independence from Denmark until 1944) for a reported $5.5million (about $130million today). It followed the successful purchase of Alaska from Russia the previous year for $7.2million. The talks stalled, and there were similar failed negotiations in 1910. It wasn’t until 1917 that the US formally recognised Denmark’s sovereignty over Greenland, in exchange for the US purchase of the Danish West Indies (now the US Virgin Islands).

Why does Trump want Greenland?

Location, natural resources and prestige – but it’s not clear in what order. After World War II, when the US occupied Greenland with Danish consent, president Harry Truman offered $100million (about $1.7billion today) to buy the island. That, too, was turned down, but a 1951 US-Denmark defence pact once again recognised Danish sovereignty, while giving free rein to the US to build military bases there. For decades, under the Nato umbrella during the Cold War, the US made the most of that right, principally at the Thule air base, on the northeast coast 750 miles north of the Arctic Circle. At its peak, the base (now renamed the Pituffik Space Base) was home to 6,000 US military personnel, with another 4,000 across the island. Today, there are fewer than 200.

Is Greenland not exactly a strategic priority?

Quite. But the world’s heating climate has changed that sanguine calculus. Global warming is opening up Arctic sea routes, making the exploitation of Greenland’s mineral resources more plausible and conceivably increasing the threat to the US from Russia or China via the polar region. But when it comes to resources – Greenland has 39 of the 50 minerals classed by the US as critical to national security – the economic case doesn’t add up. Greenland is an island the size of Saudi Arabia with just 100 miles of paved roads in total, and most of the territory is covered by an ice sheet up to a mile deep. “The harsh environment, enormous financial investments, and massive infrastructure and workforce buildout required to create an economic engine could cost at least $1trillion over two decades [and makes] little to no economic sense,” says Jordan Blum in Fortune. There’s oil, but the last, unsuccessful drilling bid was abandoned in 2011. Neither of the active mines extract the desired rare earth metals essential to computer, vehicle and military equipment. Moreover, Greenland is already open for exploitation, and sovereignty would add nothing.

What about the security argument?

Greenland is on the fastest routes between the US and Russia. Existing defence treaties with Denmark give Washington all of the necessary military access for “Golden Dome” bases and naval patrols. But Trump is on a drive for hemispheric dominance and – perhaps – personal prestige. His administration increasingly sees the world in terms of 19th-century Great Power politics, with the Monroe Doctrine of US hemispheric hegemony – and its new “Trump Corollary” – specifically at its centre. In 1848, the British foreign secretary Lord Palmerston observed that England has no “eternal allies or perpetual enemies” – only eternal and perpetual interests, and “those interests it is our duty to follow”. For the 19th-century hegemon, Great Britain, read Trump’s America today. Trump believes the Atlantic alliance is ineffectual, so it doesn’t matter to him that the US could achieve all of its national security and economic objectives without annexing Greenland. Trump’s “eternal interest” is in safeguarding the security of the US in perpetuity, and he appears to have determined that acquiring sovereignty over Greenland is vital to that end.

What can Europe do?

Protect its own interests. European governments and investors own around $8trillion of US bonds and equities – almost twice as much as the rest of the world combined. But pulling that investment back is likely to be a slow process, with investors wary of overreacting. If Trump’s tariffs had gone ahead on 1 February, then Brussels would almost certainly not ratify last year’s EU-US trade deal, and retaliatory tariffs would be on the table. The nuclear option for Europe would be the EU’s Anti-Coercion Instrument, a law that allows the EU to respond punitively to economic blackmail from non-EU countries interfering in the “legitimate, sovereign choices” of the EU or its member states. Measures include tariffs, import and export restrictions, curbs on trade in services as well as reduced access to banking and capital markets – and blocking access to most of the single market while ignoring existing international treaties. It’s a nuclear option as it would wreak major economic damage on Europe itself, and is designed more as a deterrent – bringing offenders to the negotiating table – than as an offensive one. Let’s hope it isn’t needed.

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It is a bizarre legal action. Jerome Powell, the chairman of the Federal Reserve, the US central bank, has been prosecuted over renovations of the Fed’s headquarters and may now face criminal charges. Given that it manages an economy worth $30trillion and the world’s reserve currency, it is hard to see that the $2.5billion spent on improving the Fed’s offices really matters much. Even so, Donald Trump has clearly decided to use it as a weapon for a full-scale assault on a Fed chairman he would prefer to get rid of.

Powell himself was clear that the legal attack was just a way of bringing the Fed to heel. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preference of the president,” he said in a statement. In other words, it is a political attack on the Fed and an attempt to allow the president to control monetary policy. If Powell is removed from office by the courts, whoever is appointed to replace him will clearly be taking instructions directly from the White House.

That is a dramatic and dangerous development. This is not to deny that independent central banks are worthy of criticism. Over the past 30 years, they have become too powerful, too confident in their own abilities and too quick to print money. You can make a case that, instead of ensuring greater stability, which is what they were meant to do, independent banks have inflated a series of asset bubbles, indulged spendthrift politicians and prioritised trendy causes while allowing industry to be hollowed out. There is a case for reform. Still, there is a big difference between that and a power grab to hand the right to set rates to the White House.

There are two big problems with that. First, it looks as if Trump is determined to control interest rates himself, either directly, or else through a tame proxy at the Fed. That is not without precedent. In Britain, interest rates used to be set by the chancellor, but the result was that the UK had one of the worst records on inflation in the world before Gordon Brown made the Bank of England independent in 1997. And it is hard to think of a worse person to set rates than Trump. He is temperamental, he constantly changes his mind, he doesn’t listen to advice, and his falling approval ratings mean he will constantly try to cut rates to boost short-term demand. Even more seriously, if the president acquires the right to set rates, it’s hard to see how it will ever be given up. It is too major a power to surrender. The US will have a politicised monetary policy permanently.

How bad will it get under Trump?

Everything else the president is doing appears designed to stop the free market working and drive up prices. The US has already imposed the steepest tariffs since the 1930s, with an average levy on imports of 18%. Closing off its markets to global competition will only drive prices higher and quality down. Only last weekend, Trump promised to cap credit-card interest at 10%, the kind of populist policy you would expect from the far left. Trump has also started capping corporate investment in the housing market. He is directing the oil companies to invest in Venezuela regardless of whether there is an investment case for it or not (with oil at $50 a barrel, there probably isn’t). There does not appear to be a coherent plan, but a whole series of interventions to create markets rigged by the government. State-controlled economies always end up with higher prices.

Add it all up, and one thing is clear – sooner or later the US will see a major rise in inflation. How bad will it get? There is no way of knowing for certain, and it will depend on what else is happening in the global economy. But once prices start to rise we know they are very hard to bring under control again. And if US prices rise, that will drive global prices higher. We can expect inflation to spread to Britain and the rest of Europe very quickly. Investors are already positioning themselves for that, with the price of gold hitting record highs every week. Prices of defensive assets will inevitably go a lot higher.

How did the protests in Iran start?

The latest protests in Iran started with the bazaaris – the normally conservative Tehran merchant class who, two generations ago, were the financial backbone of the 1979 Revolution. On 28 December, shopkeepers in the capital’s Grand Bazaar went on strike in protest at the government’s handling of the nation’s collapsing economy – and their own inability to trade due to the volatility of the currency and inflation. Other businesses swiftly followed, and protestors took to the streets in a wave of protest that rapidly spread to all parts of Iran. Thousands have since been killed in a brutal crackdown by the regime. After a year of economic crisis made worse by the wave of US and Israeli air strikes in the summer, president Masoud Pezeshkian had nothing to ease the sense of a failing government and state when he gave a candid speech in December admitting that he had no solutions and the country was “stuck”. “If someone can do something, by all means go for it,” he told students in a speech that went viral.

What’s happening in Iran's economy?

Last year, the rial lost 45% of its value (crashing to an all-time low against the US dollar), destroying the purchasing power of Iranians. The official inflation rate was 43% (higher than anywhere except Sudan and Venezuela) – taking the price of everyday staples such as bread beyond the reach of some, and hitting even relatively well-off Iranians hard. The economy shrank last year by 1.7%, battered by lower consumption and interrupted oil output from the 12-day war with Israel, with a sharp 2.8% drop expected this year (according to World Bank forecasts). Unemployment is very high in a country of 90 million people, with some estimates putting the employment rate at just 41%. Around a fifth of the population is living below the World Bank’s poverty threshold. Parts of society are experiencing food shortages, due to poverty, while chronic water shortages after five years of drought have added to the sense of desperation – as has the blow to national prestige from the fall of Shia allies and clients such as Assad in Syria and Hezbollah in Lebanon.

What does this mean for Iranians?

All this created the conditions for urban youth and rural workers – frustrated by stagnant wages, lack of jobs and declining life prospects – to join the expanding protests. There is still notable support for the regime and a very divided opposition, which makes imminent state collapse or revolution unlikely, according to most analysts. However, the economic crisis is viewed by most Iranians as part of a wider systemic failure – combining mismanagement, entrenched corruption, a bloated public sector and lack of private investment, elite capture of key sectors (especially by state security actors), and the effects of long-running sanctions.

How have sanctions affected Iran?

The economy has been strangled by ever-tightening Western sanctions since 2012, when then-US president Barack Obama ramped up the pressure over Tehran’s nuclear programme and convinced the EU to follow suit. With Iran cut off from the Swift global payments system, the rial slumped, inflation soared, investment declined, and Iranians felt worse off. That year saw Iran’s first significant contraction since the early 1990s, and since then “growth has been essentially half the rate it was up until that point”, says Esfandyar Batmanghelidj of the Bourse & Bazaar Foundation think tank. Between 2000 and 2012, average annual growth remained steady at 4.4%. Since then, it’s been 1.9%.

What about Iran's oil?

Since the 1979 revolution, Iran has relied heavily on oil and gas exports. They have long funded the state, paid for imports and sustained social spending. In good years, when oil prices were high and exports flowed, growth followed. In bad years, the economy contracted sharply. This dependence leaves Iran unusually exposed to geopolitics. As such, Iran’s fortunes have tended to rise and fall with sanctions regimes and diplomatic turns rather than domestic productivity gains. Each major shift in foreign policy – whether a nuclear agreement or its collapse – ripples through household incomes.

How does foreign policy affect Iran's economy?

After Iran signed its nuclear deal with the US and other world powers in 2015 – sanctions relief in exchange for tight restrictions on nuclear activity – growth rebounded, inflation fell to single-digits, and oil exports rose to a peak of 2.8 million barrels a day (b/d) in 2018, for example. But when Donald Trump pulled the plug on the deal, Iran was once more cut off from Swift and oil exports fell to just 300,000 b/d in 2019. Moreover, sanctions did not simply shrink the economy; they distorted it, creating parallel markets favouring those with connections to the elite, and deepening inequality. More recently, Iran’s vulnerability to external events has also been clear. In the seven months since Israel launched its 12-day war against Iran in June, the rial lost 40% of its value. Annual inflation hit 43% in December, while food inflation soared to 72%, and the price of bread rose 113%. Corruption, on an epic and almost shameless scale, further distorts the economy. The Islamic Revolutionary Guard Corps, the country’s security service loyal to the supreme leader Ayatollah Khamenei, for example, controls a vast commercial and financial sector that “benefits from measures that hammer the wider economy”, says The Economist.

Will Iran's regime survive?

As MoneyWeek went to press, it looked as though the protests were ebbing in the face of the exceptionally brutal and bloody state response. Donald Trump has warned repeatedly that the US would strike Iran again if the government kills peaceful protesters, but as yet, that killing has progressed and intensified with impunity. A crucial factor is the lack of a united opposition. This is certainly a desperate moment for Iran. But while anger and misery are abundant, the lack of coordination – and common ground on what the future should look like – means that it may not yet be a revolutionary one.

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How big is Venezuela’s oil industry?

Venezuela’s oil industry is about a quarter of the size it used to be. Venezuela has the world’s biggest proven reserves of oil, estimated at more than 300 billion barrels, or around 17% of the global total. The oil lies onshore, and the vast majority is in the central Orinoco belt – south of the Orinoco River – in a well-mapped 50,000 sq km zone that’s probably the biggest single hydrocarbon deposit on Earth. But in recent decades, Venezuela’s once-surging stream of oil has dwindled to a trickle. Production peaked in the 1960s and 1970s, when US and British oil companies dominated, producing 3.5 million barrels a day, or around 7% of global output at the time. Following nationalisation (in January 1976) production fell, but then rose again until a late-1990s peak. Since the turn of the century, it has slumped, from more than three million barrels/day to a trough of under 700,000 in 2021 and 960,000 in 2024. That’s less than 1% of global supply and most of it goes to China.

What happened under Chávez?

Venezuela's oil production fell slightly under the socialist president Hugo Chávez (1999-2013), but under his chosen successor – the incompetent, corrupt and increasingly authoritarian Nicolás Maduro – production has cratered as the economy tanked. Decades of corruption, mismanagement, underinvestment and a lack of, or botched, maintenance at PDVSA (the state oil company) have severely degraded Venezuela’s infrastructure and capacity. As Maduro tightened his grip by rigging elections and crushing protests, sanctions imposed by the US (and Europe), especially after they were tightened in 2019, have restricted Venezuela’s access to financing, many international markets and vital new technology. More basically, Venezuela’s heavy crude must be blended with diluents such as naphtha, which is hard to source due to sanctions and related supply issues, thus constraining production. Meanwhile, many skilled workers left the industry – indeed, millions of Venezuelans left the country altogether – compounding technical challenges.

What is Donald Trump’s plan in Venezuela?

To take over and revitalise Venezuela’s oil industry, while “ruling” Venezuela from Washington, with Marco Rubio as the absentee viceroy and the current government still in place. For months, Trump touted his military build-up against Venezuela as an anti-narcotics operation. Within hours of Maduro’s removal, Trump announced, “We are in the oil business”. The oil business in Venezuela “has been a bust, a total bust for a long period of time”, Trump said. “We are going to have our very large United States oil companies… spend billions of dollars, fix the badly broken infrastructure… and start making money for the country.” Having decapitated the regime, the US is apparently content to leave the rest of the regime and state apparatus in place – a strategy that has raised questions about exactly how involved Maduro’s deputy (and new interim president) Delcy Rodríguez was in the US mission.

Was Maduro's capture an inside job, then?

It seems Rodríguez was made an offer she couldn’t refuse, or chose not to. As well as being vice-president, Rodríguez was also Venezuela’s oil minister from 2024 and head of the intelligence service from 2018. According to Bloomberg, US oil-industry executives and lawyers saw her as an impressive figure who was navigating Venezuela’s industry through international sanctions, economic pressures and internal mismanagement. In recent months, the US oil industry reportedly lobbied for her as Maduro’s replacement – and Trump’s team came to the same conclusion. Both groups decided that Rodríguez, long seen as a “bridge between the government and private sector, could stabilise Venezuela’s oil-based economy, and facilitate American business faster” than the opposition leader, María Corina Machado, could.

Hasn’t the US got plenty of oil?

Indeed, the US is the world’s biggest oil producer. What it hasn’t got much of these days is the kind of heavy crude produced in Venezuela. That matters because of a structural tension within the US oil industry as a whole; namely, that its big Gulf Coast refineries, built decades ago, are no longer compatible with the type of oil it now produces. The US’s supremacy in oil has been built on the shale-oil revolution: light crude, most of which gets exported. But “if America is going to keep its cars fed with gasoline, it needs heavy, gloopy crude”, says Ed Conway on his Sky News blog. “And since it costs many, many billions of dollars to overhaul refineries, no one particularly wants to do that anytime soon.” The US might be producing more oil overall, but it’s also importing far more heavy oil. In 1978, only 12% of US imports were heavy. Now it’s 70% – mostly from Canada and a small slice (sanctions notwithstanding) from Chevron’s joint venture in Venezuela.

Was the Venezuelan oil grab an easy win for the US?

Hardly. For starters, there’s the sheer scale of the investment required to repair and retool Venezuela’s crumbling infrastructure. According to analyst Jorge Leon of Rystad Energy, roughly doubling production to two million barrels by the early 2030s will cost an estimated $115billion. That’s three times the combined capital expenditure of ExxonMobil and Chevron last year. At current oil prices, around $60 a barrel, and with the world already oversupplied, there’d have to be a truly compelling case for major investment in Venezuela, with its relatively low-quality, cheap oil that’s pricey to refine. Right now, that’s just not there.

Why not?

Because not much has changed except the president, and the economics doesn’t stack up. Venezuela has not suddenly become a better place for the likes of Chevron and Exxon to invest billions, says Yawen Chen on Breakingviews. “It’s the same military-dominated petrostate with corruption issues as before, plus a potentially even worse security situation” – and certainly a more unpredictable one. The country is awash with guns, as Ambrose Evans-Pritchard points out in The Telegraph, and paramilitary “colectivos” exact fees before letting a single barrel move. For oil companies to invest would require the kind of political stability and respect for property rights that once helped make Venezuela one of the richest countries in the world. Trump’s snatching of Maduro was “spectacular and swift”, says The Economist. “The economic reward from it will be neither.”

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1. An IPO boom

The number of listed companies has declined relentlessly over the past 20 years. In London, the number of stocks has fallen from 2,448 in 2013 to 1,800. The numbers in New York have fallen from a peak of 7,000 in the 1990s to around 4,000 now, and there have been similar declines across most of the major exchanges. But 2026 is going to see some blockbuster initial public offerings (IPOs). OpenAI, Anthropic and SpaceX are all likely to float at values of $500 billion-plus. In the wake of that, there will be a huge appetite among investors for new issues. Entrepreneurs with businesses to sell will be quick to take advantage, and so will the private-equity firms that have plenty of companies on their books that they would like to sell off. The result? An IPO boom.

2. German giants move to China

We have already seen lots of major European firms move to the US. But surely the world’s second-biggest economy has its attractions as well? China is growing at 5%-plus a year, has hundreds of millions of increasingly wealthy consumers and has deep capital markets. Many of Germany’s biggest companies are already heavily dependent on China. About 30% of Volkswagen’s and Mercedes-Benz’s sales are made there. Many of the chemicals and engineering giants are just as dependent. With trade barriers going up between the West and China, firms may have to choose one side or the other. When you look at the numbers, China may be the better bet. You’d have to compromise with the regime in Beijing, but it could make commercial sense – a lot more sense than relying completely on declining domestic sales.

3. Asda and Morrisons merge

The determination of private-equity houses to buy second-tier British supermarket chains in the early 2020s was baffling at the time. A few years later, one point is clear. It has not worked out well. TDR Capital is now the majority owner of Asda, after a £6.8 billion takeover in 2020, but since then the chain has struggled to maintain market share. Morrisons is now owned by Clayton, Dubilier & Rice after a £7 billion deal in 2021 and has, likewise, performed poorly ever since. The UK grocery market has become brutal. A super-efficient Tesco dominates the mass market, Waitrose and Marks & Spencer control an affluent niche, while the German discounters Aldi and Lidl snap away at the cheaper end of the market. At the same time, the government keeps imposing extra costs and burdens. Worse, with a stagnant economy and with taxes rising all the time, sales are hardly healthy. There is only one real fix if the buy-out firms are to have any hope of getting their money back. Merge the two companies to create a new chain with roughly 20% of the market, and start cutting costs.

4. Dubai introduces income tax

People might be moving there for a better job, to start a business, or just for the sun and lifestyle. But all of the tens of thousands relocating to Dubai every year are also cutting their tax bills. Yet it turns out that running a state without any significant taxes is harder than it looks. As it grows, there are debts to be serviced, infrastructure to be paid for, while the native population expects more generous welfare. The UAE has already introduced a modest corporate tax. In 2026, I predict it will impose its first income tax. It will be low at first, perhaps about 5%, and probably only levied on incomes above $100,000. Even so, British expatriates are in for a shock.

5. The rise of Great British Vehicles

We already have Great British Railways and Great British Energy, and half the steel industry has been taken into state ownership. Our government is keener on nationalisation than any of its predecessors since the 1970s. The only real difference is it now puts the word “Great” into the branding, presumably on the grounds that we might otherwise not notice how “great” the firms are. Meanwhile, the car industry is in deep trouble. It faces the highest energy prices in the world, and the UK, for now at least, is sticking to an absurd target to ban new petrol cars from 2030 onwards, even as the target is pushed back elsewhere. The solution? The government will have to step in to rescue the manufacturers before they close down. Welcome to Great British Vehicles, a state-owned manufacturer, making electric cars that are hugely pricey, don’t work, and no one wants. Britain’s journey back to the 1970s will be complete.

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The way investors view defence stocks is changing. They are shifting from being seen as slow, plodding businesses to being viewed as genuine growth firms. This shift has led to a sharp rise in share prices and has made defence one of the strongest parts of the market over the past three years. The question is whether this enthusiasm is justified and whether the firms that supply military customers can meet these higher expectations.

For many years after the Cold War, investors expected global defence spending to fall. Governments moved away from large standing armies and focused instead on welfare and social programmes. This so-called peace dividend held back the defence industry for decades. That period has now come to an end. Growing geopolitical tension, highlighted by Russia’s continuing aggression and China’s increasing pressure on its neighbours, has forced Western governments to rethink security. This is not a temporary surge in spending, but a lasting commitment to stronger deterrence and modernisation. It means steady demand for equipment and technology, long-term contracts and a sustained period of high activity across the defence supply chain.

The scale of this shift is already visible in public finances. Western governments are putting higher defence spending into law, turning policy goals into binding budget commitments. These plans focus on advanced equipment and long-term readiness, creating a strong investment case for the sector. The renewed need for scale, common standards and faster delivery supports the prospect of dependable long-term growth for companies that provide essential systems and components across air, land and sea.

The geopolitical foundations of rearmament

After the Cold War, the world entered a brief and unusual era. From 1991 onwards, the US was the only superpower and Western political and economic ideas spread rapidly. But this so-called “liberal international order” never truly took root outside the Western alliance. Its foundations were weaker than they seemed – a fact laid bare by the 2008 financial crisis. That crisis shattered trust in established leaders and institutions. The deep recession that followed wiped out wealth and led to years of sluggish growth. Disillusionment with globalisation fed a rise in populism and nationalism, as people began to associate the US-led system with instability and inequality. The dream of a smooth, borderless global economy started to look naïve.

China avoided much of the fallout. Its economy kept expanding and its share of global output jumped from around 6% in 2007 to roughly 20% today. That resilience gave China’s state-driven model new credibility at home and abroad. The collapse of Lehman Brothers showed the limits of US power – and Beijing saw an opening. With the US on the back foot, China grew more assertive and confident on the world stage.

Since then, global divisions have deepened. China has built its own web of influence through economic and political initiatives. The Belt and Road Initiative, once billed as a trade project, has become a strategic tool spanning more than 150 countries. It sits alongside the Global Security Initiative, the Brics group of nations and the Shanghai Cooperation Organisation – all offering partnerships that come without the political strings attached to Western aid and investment.

The US, for its part, has turned inward. Weighed down by inequality and endless overseas commitments, it has scaled back its presence in Europe and the Middle East to focus on the Indo-Pacific. That has forced allies to spend more on defence, creating not greater stability, but a world that is more divided and heavily armed. The rivalry between Washington and Beijing is now about more than power or trade. It is a battle over whose values will define the next world order – one in which nations are prioritising security and resilience over the efficiency that once defined the post-Cold-War age.

The West's arms race

Western nations are shifting their defence strategy, moving from expeditionary operations toward large-scale deterrence against peer rivals. Expeditionary operations involve deploying smaller forces to distant theatres, such as the Nato-led air and naval mission in Libya in 2011 to enforce a no-fly zone. The new focus on large-scale deterrence involves building massive, high-tech capabilities to prevent a major global power from attacking. This is demonstrated by Nato’s Steadfast Defender exercises, which test the rapid movement of tens of thousands of troops across Europe. This change has led to firm, long-term spending commitments across allied nations as they move quickly to close gaps in military capability.

Nato has formalised this shift. The original 2014 Defence Investment Pledge called on members to spend at least 2% of GDP on defence. At the 2025 Nato summit, members agreed to raise that to 3.5% of GDP by 2035. That provides a clear and lasting foundation for the revenue outlook of defence contractors.

In Britain, spending is rising, driven by the nuclear deterrent and the Global Combat Air Programme (GCAP). The UK is overseeing the delivery of Dreadnought nuclear submarines and remains a key partner in the Aukus pact, which will supply Australia with nuclear-powered submarines. These are vast, multi-decade projects that underpin the industrial base of the sector.

Germany has made one of the most dramatic policy reversals. In 2022, it announced a €100 billion special fund for defence. The money is focused on rebuilding land forces after decades of underinvestment. Germany is also working with France on the Main Ground Combat System project, which aims to create a new generation of European battle tanks.

The US continues to lead the world in defence spending. Its budget now targets faster modernisation and production. The army is pushing ahead with its Next Generation Combat Vehicle programme, which includes the new M1E3 Abrams tank. It also dominates the global arms market through the Foreign Military Sales programme, which secures long-term maintenance contracts for platforms such as the F-35 fighter jet.

Japan is another major player. Faced with growing pressure from China, it is investing heavily in modern equipment. Japan is a key industrial partner in GCAP, working with Britain and Italy on a sixth-generation fighter. The country is also developing long-range strike systems, marking a clear shift away from its post-war focus on self-defence.

France remains committed to maintaining a strong and independent defence sector. Its aerospace and naval industries are central to Europe’s strategic base, and it continues to work with Germany on the Main Ground Combat System (MGCS) project. Timelines are long, but these programmes anchor industrial cooperation across the continent.

The defence stocks well placed to benefit

In the last few years, it hasn’t mattered which defence stocks an investor owned, as they nearly all rose strongly. However, future market advantage will belong to companies with the most dependable income. That strength comes from owning generational platforms and providing essential support services.

BAE Systems (LSE: BA) is the cornerstone of the UK defence industry, securing the nation’s nuclear future. The firm boasts a record order backlog of £75.4 billion, more than double what it was 10 years ago. Its largest long-term revenue driver is the naval nuclear franchise, specifically the SSN-Aukus and Dreadnought submarine programmes. BAE is investing significantly in its facilities at Barrow-in-Furness to double capacity, securing production volume for decades. Its acquisition of Ball Aerospace also successfully expanded its already large exposure to the robust US defence market. BAE is a diverse global business that generates only a quarter of its revenue in the UK, with the US making up almost a half. Perhaps its biggest risk is Saudi Arabia, its third most important market, if the country is pulled closer to China’s sphere of influence and is pressured to consider Chinese defence equipment.

Rolls-Royce Holdings (LSE: RR) is roughly one-third exposed to defence and is strategically essential, primarily through its unparalleled expertise in naval nuclear propulsion. Rolls-Royce Submarines supplies the nuclear propulsion plant for the entire UK nuclear submarine fleet and will supply all the nuclear reactors for both the UK and Australia’s new SSN-Aukus submarines. This provides a critical, long-term franchise integral to the UK/US strategic nuclear partnership. Rolls’s defence segment targets a midterm operating margin of 14%-16%, but the division is supported by the massive strength of the civil aerospace division, which recently reported an almost 25% operating margin. This robust commercial cash flow provides the finance needed for the significant capital investments demanded by the Aukus project.

Babcock International Group (LSE: BAB) focuses on long-term support contracts, particularly for marine and nuclear divisions. The firm is the prime contractor for the UK Royal Navy’s Type 31 frigates. More importantly, its Arrowhead 140 frigate design has become a commercial success. The ship has already won export contracts from Poland and Indonesia, providing a major earnings catalyst. The Cavendish Nuclear arm provides highly predictable revenue streams through long-term support and facility-management contracts across UK nuclear licensed sites. This focus on long-duration services minimises the margin volatility associated with high-risk platform development.

Qinetiq Group PLC (LSE: QQ) operates a unique, low-risk model centred on technology and testing services. Its financial future is underpinned by the Long-Term Partnering Agreement with the UK Ministry of Defence, recently extended for another five years to 2033. This £1.5 billion extension covers testing and evaluation for future capabilities, including GCAP and innovative weapons systems. The service-based revenue structure provides predictable earnings.

Following its restructuring, Melrose Industries’s (LSE: MRO) defence exposure lies within its structures division, which supplies airframe components. Defence represents 34% of the US revenue in this segment. Management is working consistently to improve margins, anticipating that the structures division will achieve an operating margin in the low teens by 2029. Melrose, as a key component supplier, is using strong demand and inflation to renegotiate long-term contracts and turn higher volumes into higher profits.

Rheinmetall (Frankfurt: RHM) is an important high-volume defence stock for land defence and ammunition in Europe. The company has reported a surge in defence sales recently, concentrated in vehicle systems and the weapons and ammunition division. Management projects consolidated sales growth of 25%-30% in the 2025 fiscal year, supported by strategic investment to create new capacity across Europe. Rheinmetall’s ammunition division, benefiting from scarcity, is generating very high margins. It is strategically poised to capture a significant share of Nato Europe’s equipment spending.

As the world’s largest defence contractor, Lockheed Martin Corporation (NYSE: LMT) holds massive strategic platform, such as the F-35 and Aegis systems. Its business is structurally dependent on platforms that define the next generation of warfare. However, the firm is susceptible to fixed-price (FFP) contractual risk. This is where the company bears the risk of significant cost overruns. Programme charges are commonplace in defence contracting; in recent quarters, Lockheed Martin has taken significant hits from them. This volatility highlights that, while sales volume is guaranteed, earnings can be uncertain. Despite the increase in business since the start of the Russia-Ukraine war, Lockheed Martin is one of two shares profiled here (along with L3Harris) that have disappointed. Arguably, however, it is one of the cheapest and most diverse ways of gaining exposure to defence trends.

RTX Corporation (formerly Raytheon Technologies, NYSE: RTX) specialises in missile systems, air defence and naval programmes. RTX is benefiting from a depletion in missile stocks as Western-aligned nations support Ukraine. The missiles division has secured major awards for systems such as Amraam and Stinger. Like many defence companies, RTX has non-defence exposure. This comes via its commercial jet engines, Pratt & Whitney, which are a major competitor to Rolls-Royce’s. The stability provided by its commercial aerospace segments acts as a financial buffer, but lowers the net impact of defence spending.

Northrop Grumman Corporation (NYSE: NOC) focuses on strategic deterrence programmes, such as the B-21 Raider bomber and the Sentinel Intercontinental Ballistic Missile (ICBM). Its backlog stands at more than $90 billion and stretches decades into the future. Management expects the acceleration of production to drive significant sales growth. Like Lockheed Martin, Northrop faces FFP execution risks, but is making strategic choices to sacrifice immediate margins on early B-21 production to secure long-term dominance.

General Dynamics Corporation (NYSE: GD) is a diverse firm, with both defence and non-defence segments. It is split into four similar sized divisions: marine systems (submarines); technology (defence information systems); combat systems (land) and aerospace (Gulfstream). The combat systems segment is a primary beneficiary of European land rearmament, securing contracts for the Piranha and Ascod vehicles. The company’s overall operating margin expansion is driven by both defence and the highly profitable Gulfstream private-jet business.

L3Harris Technologies (NYSE: LHX) is a high-tech company specialising in command, control, computers, communications, cyber, intelligence, surveillance, and reconnaissance (C5ISR) and space systems. The firm reported an outstanding book-to-bill ratio, which compares orders received to orders delivered, of 1.5 times, suggesting demand is accelerating. Focusing on high-demand, high-margin technology, and not on older legacy manufacturing, is a priority. This approach aligns with allied budgets that favour integrated, multi-domain operations. The firm was the product of a merger of two rivals in 2019 and the shares have thus far failed to live up to the promise, but the outlook has been improving.

Thales (Paris: HO) provides exposure to technology and digital warfare. A quarter of the business is owned by the French state. It is a complex business that is considered strategically important by the French government. Thales is a technology company as much as a defence business, having made large investments in areas such as cybersecurity, artificial intelligence and quantum technology. Additionally, it produces avionics for aircraft and short-range missile systems.

Understanding the risks

Demand for defence is secure, but it’s not without risks. Fortunately, these are largely offset by long-term contracts and government planning. The first risk involves finances. Western governments face tight budgets. In the UK, the new defence target of 3.5% of GDP is demanding. Ageing populations and high debt levels make this goal tough to maintain. However, long-term contracts ease this concern. Programmes such as Aukus and GCAP last for generations. Governments commit to infrastructure and they sign contracts for development and production that span decades. These agreements ensure steady revenue for contractors, even if budgets face short-term cuts.

The second risk stems from the changing nature of warfare. Conflicts are beginning to focus on drones, cyber threats and technological espionage. Current spending often targets traditional platforms, such as tanks and ships, which may not address new, unconventional threats. However, listed companies benefit from guaranteed spending, regardless of the platform’s effectiveness. Long-term government defence plans secure this funding, protecting UK and Western-aligned firms. The third risk involves public opinion. As governments shift money from welfare to military strength or raise taxes to fund both, public support may weaken. This political challenge could delay or reduce future budgets, affecting defence companies.

Still, there is an extraordinary opportunity here for defence companies that are facing levels of sustained growth not seen for almost 40 years. BAE Systems is the obvious pick for those seeking broad exposure. It is no longer the cheap stock it once was, but it gives pure exposure to defence spending that provides exposure to both UK and US defence spending. It operates across a large number of product types and has secured contracts that could run into decades. For those looking for a cheaper business, Lockheed Martin, the world’s largest defence business, is on a discount to the sector. It requires investors to look beyond the problems caused by the fixed-price contracts, but is the purest way of gaining exposure to the US defence budget.

Babcock gives exposure to long-term support contracts, which are vital in maintaining programmes and facilities. Finally, L3Harris has struggled slightly in recent years from issues created by its merger, but it looks as if its problems are behind it. Should that be the case then earnings growth could come through at a rate even higher than the other defence stocks.

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What happened at COP30?

Last month’s climate jamboree in Brazil, COP30, was a damp squib – and not just due to the torrential rain that poured through the venue’s leaking ceilings. The UN’s 30th Conference of the Parties had been touted as the moment when there would be a move from pledges to implementation. But action was little in evidence.

For the first time, the US boycotted the conference. China was there, but studiously avoided stepping into the leadership vacuum. The summit ended with a watered-down resolution that made no direct mention of fossil fuels, the main driver of global warming. And at a summit held in the Amazon rainforest city of Belém, delegates failed to agree the hoped-for road map to a global deforestation accord.

Did COP30 achieve anything?

The summit adopted a set of 59 global indicators to track progress toward the Global Goal on Adaptation (GGA) and agreed on the next round of National Adaptation Plans, bureaucratic scorecards that represent an important and growing recognition that adaptation and mitigation – not just emissions cuts – must be part of global climate action. These were backed up by national commitments to triple adaptation finance by 2035 to roughly $120 billion a year.

But the defining feature of COP30 was the failure to even mention fossil fuels in the final resolution, even while explicitly acknowledging – for the first time – that the world is now likely to “overshoot” the 1.5˚C warming target in the 2015 Paris Agreement.

Is it time to scrap the COPs?

Many think so. The COPs have long been attacked as talking shops that spew a lot of hot air about hot air – issuing countless warnings about the cost of inaction but rarely managing to agree solid proposals for how the world should halt dangerous rising temperatures. In the 30 years since the first congress in Berlin, greenhouse gas emissions have risen by 34%. That’s slower than the 64% increase over the three previous decades, but not nearly enough to stop temperatures breaching the thresholds that scientists say will cause irreversible damage to the planet.

Looked at another way, though, without the Kyoto (1997) and Paris (2015) COPs, the situation would be far worse. Simon Stiell, head of the UN’s Climate Framework, calculates that, without the COP process, world temperatures would now be heading for a truly catastrophic 5˚C of heating, instead of the 2.5˚C increase – merely disastrous – that is now projected.

What’s happening to temperatures?

They are going up. This COP had an inauspicious run-up, in that early last month the UN’s Emissions Gap report confirmed what had long been known: that the steady increase in carbon emissions since Paris means global temperatures will rise beyond 1.5°C above pre-industrial levels. Global temperatures have surged past that mark in some recent years, with 2023 and 2024 ranking among the hottest on record. The 30-year rolling average – the benchmark used by the Paris deal – is still just below that level, at about 1.37˚C.

To keep even a 50% chance of limiting warming to 1.5°C, the world must cut emissions roughly 55% by 2035, compared with 2019 levels. But the national plans submitted within the COP process offer a fraction of that, putting the world on track for roughly 2.5°C of warming.

Are emissions now falling?

No. Global fossil-fuel emissions hit record highs in 2025, with the world emitting roughly 39.1 billion tons of planet-warming carbon dioxide, according to the Global Carbon Project. That’s 1.1% more than in 2024. A relatively small number of big countries account for most of the world’s emissions, with China responsible for 32%, the US 13%, India 8% and EU nations 6%.

Though emissions are still rising in the US, one promising sign is that they are now flatlining in China, after years of surging. Even so, the International Energy Agency projects that demand for coal, for example, will remain at around record highs until 2027. Demand is still rising in China, India and other developing countries, offsetting falls elsewhere.

So climate diplomacy has failed?

It may be becoming less important. It’s a “COP cliché to say the pavilions where countries host talks on green projects, technologies and trends are more interesting than the formal negotiations”, says Pilita Clark in the Financial Times. What became clear in Belém is that things are changing in the real world regardless of what gets agreed at COPs. In developing countries, from Ethiopia to Nepal, sales of electric cars are surging exponentially. Renewable energy is booming everywhere from Ukraine to Pakistan.

The economics of energy continue to shift decisively in favour of decarbonisation, agrees Paul Polman, the former CEO of Unilever, in Time. Meanwhile, the “centre of gravity is shifting” at COPs – with much of the most important progress happening “around the formal process and despite its limitations”.

What's changing?

In Belém, for example, the Action Agenda – a non-negotiated process – saw businesses, investors and city authorities set out investment plans totalling $1 trillion for clean energy and grid expansion by 2030. And the Netherlands and Colombia jointly announced a non-COP international conference in 2026 to develop an equitable, science-based road map for phasing out fossil fuels.

The institutions of multilateralism still matter greatly, but “may no longer be the primary engine of climate progress”. Businesses – organisations that plan far beyond political cycles – will increasingly be at the forefront, while the COP process must evolve to become simpler and implementation-oriented, or risk losing all credibility.

Indeed, last month’s jamboree may be “remembered less for what it resolved and more for what it exposed: that ambition is outpacing architecture, and that the world is ready to move faster than the institutions designed to guide it”.

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While investors’ attention has been focused on Europe’s rearmament, the Indo-Pacific region is starting to undergo an equally significant military transformation. Japan has embarked on its largest increase in defence spending since 1945, while South Korea, India and others are also boosting budgets.

At the centre of this regional build-up sits Australia, a key US ally and logistical hub for its Indo-Pacific strategy. The country is investing heavily in submarines, patrol vessels and base infrastructure to strengthen its own defences and support allied operations, while also being home to one of the world’s few pure-play defence-drone companies. The following three Australian companies highlight the growing investment case for Indo-Pacific defence stocks as regional governments rearm and modernise.

Three defence stocks to consider arming your portfolio with

Austal (Sydney: ASB) is an Australian shipbuilder, supplying fast patrol-vessels, coastal craft and support ships. A hallmark of the Indo-Pacific region is long distances and contested coastal waters, making these lighter and agile vessels essential for surveillance and maritime deterrence. Domestic demand is strong, with Austal recently delivering its ninth Evolved Cape-class Patrol Boat to the Royal Australian Navy.

Austal also contributes to Australia’s wider security strategy by building the patrol boats that Canberra provides to Pacific Island nations such as Fiji and Samoa under the Pacific Maritime Security Program. The year to 30 June 2025 saw revenue grow by 24% , while earnings before interest and tax doubled.

Ventia Services Group (Sydney: VNT) provides the infrastructure and base-support services that Australia’s defence capabilities rely upon. This includes maintaining bases and training areas across the country. This service has become more important as the country strengthens its military posture in northern Australia and deepens co-operation with the US amid growing tensions in the region.

In September 2025, Australia’s Department of Defence awarded Ventia two Base Services Transformation packages worth A$2.7 billion (£1.3 billion). The department says these contracts ensure that “bases and training areas are safe and secure, and support people as they live, train and work on the Defence estate”. Profits are growing steadily. In the first half of 2025, net income rose 11.9 %, with earnings per share up an annual 16.5%. With long-dated, government-backed contracts, Ventia offers exposure to the infrastructure side of the Indo-Pacific defence build-up.

Drones have become a grim fixture of the ongoing war in Ukraine, prompting many countries to build up their own drone forces. But the other lesson many have learned is the importance of counter-drone technology: defence equipment that can disable or fight off drone attacks. The US has identified counter-drone capabilities as of its of 17 key priority-spend areas, while the EU is developing a “drone wall”.

DroneShield (Sydney: DRO) is well positioned to benefit as it specialises in counter-drone technologies. The Australian company develops and manufactures systems that detect, track and neutralise hostile drones using radar, radio-frequency and AI-enabled software. The group has a global customer base, with the Indo-Pacific region as a core segment. The largest slice of its sales comes from Europe, accounting for 36% of revenue. Asia ex-China makes up 29% of sales. In the first half of 2025, DroneShield reported record revenue of A$62.3 million, up nearly 210% year-on-year, and delivered its first-ever net profit.

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What's the issue with the internet?

The vast majority of the world’s population relies on the internet every day for work, communication, banking and social life. But the network’s ubiquity means that its frequent collapses and outages, and vulnerability to attacks by malign actors, are becoming ever more worrying. In October, a minor technical problem at an Amazon facility in Virginia knocked out Instagram, Hulu, Snapchat, Reddit and ChatGPT. Internet-connected devices – from smart speakers to fancy temperature-changing mattresses – malfunctioned in their millions. But that was pretty minor stuff. In July 2024, about 8.5 million computers worldwide suddenly crashed, displaying blue screens and leaving businesses struggling. The outage was linked to CrowdStrike, a security vendor for Microsoft, and the issue was caused by a bug in a routine software update.

Why is the internet so fragile?

Because beneath the gleaming, gigabit-broadband surface lies a patchwork of ageing infrastructure, brittle protocols, concentrated corporate control and geopolitical tensions that routinely push the global network to its limits. Some of that fragility relates to how the internet originally grew – ad hoc, and in a cooperative spirit of amateurism – and the way it has since developed. It’s vulnerable because there are so many working parts, both digital and physical. The internet sits on a gigantic global network of complex physical infrastructure – from the undersea cables that circle the globe to vast server farms in Virginia run by Amazon Web Services (AWS).

Are the undersea cables protected?

More than 95% of global data travels through roughly 550 fibre-optic cables laid across the seabed. But far from being futuristic, these cables are highly vulnerable to very mundane threats – fishing trawlers, ship anchors – as well as earthquakes, landslides and sabotage by malign state actors. Repairs by specialist ships take days or even weeks. Naturally, the corporate giants protect their assets. But when technical issues disrupted operations at Amazon’s Virginia facilities in October, it temporarily crashed the internet for users around the world.

Internet Exchange Points

At a more local level, the internet relies on Internet Exchange Points (IXPs) – warehouse-sized facilities where networks interconnect – which handle vast amounts of national and international traffic. There are thousands worldwide, but a relatively small number handle an outsized share of global traffic, making them critical single points of failure. If an IXP goes down because of a fire, power failure, or cyberattack, large chunks of the global internet can disappear along with it.

What is the internet's digital structure?

The internet is inherently fragile because it’s a complex network – indeed a network of networks made up of millions of nodes – in which very small causes can have enormous global effects. Every message sent travels through a labyrinth of servers, routers, cables and sometimes satellites. Many digital services rely on the same gateways, load balancers, identity checkpoints and routing layers. A Cloudflare configuration file growing past its limit, a DNS pointer inside AWS vanishing, a Google service-control routing rule drifting – all these small glitches can pull whole systems sideways, with cascading global impacts. But even if the physical network were flawless, and the digital architecture impregnable, the internet would still be fragile thanks to the protocols that keep it running.

How internet protocols work

The most basic – or notorious – is the Border Gateway Protocol (BGP), which directs traffic between networks, but was never designed with security in mind. One mistaken update – or malicious reroute – can send traffic spiralling into black holes or hostile servers. Meanwhile the Domain Name System (DNS) – the internet’s address book, with its familiar suffixes – is technically decentralised, but in practice heavily reliant on a few major operators.

If one of these is attacked or fails, users can find themselves unable to reach major parts of the web, even if the websites themselves are perfectly healthy. Neither of these vulnerabilities are bugs in the system; they are legacy features of the early 1990s, when the internet became a mass-user network in a far more trusting and less interconnected era. Even today, says The Economist, the people who maintain the open-source code on which the internet operates often do so in their spare time.

Does the Cloud boost resilience?

No. The growth of the cloud, pioneered by Amazon, has made the internet more vulnerable and its control more centralised, says Will Gottsegen in The Atlantic. Once, setting up a website meant buying physical servers, procuring software licences and writing foundational code from scratch. Now, for a monthly fee, AWS and a few others own the servers and pre-write the code. The servers “are consolidated under a handful of companies”, so are the potential points of failure.

How can we strengthen the internet?

Widely cited ideas include overhauling critical protocols like BGP with built-in authentication; diversifying physical infrastructure, including more international cable routes and more regionally distributed IXPs; adopting multi-cloud strategies so organisations aren’t dependent on a single provider; building far more security into internet-dependent consumer products; using regulation to foster greater diversity of suppliers in web services; and establishing global norms, modelled on the rules of warfare, that prohibit targeting civilian infrastructure in cyberspace. The internet doesn’t have to be this fragile. But first we need to recognise how fragile it truly is.

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Canada’s stocks have enjoyed a revival this year. The S&P/TSX Composite index has gained 25%, eclipsing America’s S&P 500, up just 16%. Canada has been one of 2025’s best-performing developed markets, an early sign that the post-globalisation era will reward a very different set of winners.

With economies reshoring and supply chains shortening, the natural lottery of geography and geology has never mattered more. Few nations have hit the jackpot quite like Canada, which ranks among the world’s top-five energy producers and sits atop $1.7 trillion of natural-resource wealth from oil, gas and uranium to potash, gold and timber.

Crucially, Canada pairs this abundance with political stability and alignment with the West, which is a rare combination in a world of rising authoritarianism. As Washington turns inward, Canada’s calmer politics, under the steady hand of prime minister Mark Carney, could become a safe haven for investors seeking exposure to the decade’s defining themes without populist noise.

Canadian stocks for your portfolio

Canada’s most strategic energy resource may be uranium. As the world’s second-largest producer, it stands to gain as nuclear power returns to the global electricity mix. Governments are extending reactors’ lifespans, new builds are back on the agenda, and even the Magnificent Seven are investing in nuclear projects to power AI data centres’ colossal energy needs – demand that could require 50 new reactors by 2030.

After years of supply cuts following the disaster at Fukushima and the West’s retreat from dependence on Russian energy, markets are turning to reliable producers such as Canada. At the heart of this revival sits Cameco (Toronto: CCO), one of the world’s largest and most cost-efficient uranium miners. In partnership with Brookfield and Westinghouse Electric, it plays a central role in supplying Western markets. The shares look promising as miners scramble to restore supply after a decade-long glut. The infrastructure sector has benefited from nearshoring, electrification and decarbonisation. The $1.2 trillion US Bipartisan Infrastructure Investment and Jobs Act alone is funding more than 66,000 projects, while Carney’s industrial strategy aims to channel billions into Canadian clean energy, advanced manufacturing and critical minerals.

Stantec (Toronto: STN), a global leader in sustainable design and engineering, is a clear beneficiary. Its diversified footprint across energy, water and transport positions it perfectly for North America’s rebuilding cycle. A focus on efficiency has delivered industry-leading profit margins, while exposure to US and Canadian infrastructure spending bodes well for growth.

Canada’s answer to Nvidia

Technology is a further major driver of the portfolio. We first bought Nvidia in 2016 at an average price of around $1.35 and have benefited from its meteoric rise ever since. But we have found the next wave of opportunities closer to home.

Celestica makes high-speed components to expand global data centres. With Nvidia, OpenAI and Oracle investing hundreds of billions of pounds in new AI computing power, Celestica sits in the middle of the supply chain. With Celestica’s sales from AI-related hardware surging 80% last quarter, we can access all the disruption of Silicon Valley at a Canadian discount to heady US tech valuations.

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Matthew Partridge: It has now been nearly 25 years since you coined the term BRICS for Brazil, Russia, India and China, and the four nations have embarked on very different trajectories. Which one do you think has been the most successful, and why?

Jim O’Neill: Without a doubt, China. Despite the problems they’ve had since 2015, China has just blown the other three countries away. I remember that in the original research note we had this graph using racing cars to illustrate when each of the BRICS might overtake their G7 counterparts. And we originally had China overtaking Japan by 2030. In fact, it did so by 2010, and today China is four times bigger than Japan and twice the size of the other BRICS put together.

Matthew Partridge: How has it managed that?

Jim O’Neill: The Chinese leadership has taken advantage of the stability provided by their political system to take a very long-term view of what they want to do. This is shown by their massive investment in the rail network and the move towards electric cars, while even their five-year plans contain many longer-term goals. For instance, in 2020 they set themselves a target of doubling per capita GDP by 2035. They are clearly going to achieve this.

Matthew Partridge: Surely the example of Russia shows that having a stable political system doesn’t always lead to wise decision-making?

Jim O’Neill: Like Brazil, Russia suffers from the so-called “commodities curse”. In 2001 I warned that both countries were so well endowed with natural resources that they would have to find a way to avoid following the example of other commodity-rich countries who became lazy and didn’t diversify their economies or think about innovation.

And we’ve seen this with all the corruption and state capture of the post-Soviet era, as well as the astonishing misallocation of resources devoted to fighting the brutal war in Ukraine. Our attempts to include Russia in the international community, even expanding the G7 to become the G8, proved spectacularly naive.

Matthew Partridge: Do you see the latest deal between the US and China as a genuine turning point in the trade war, or just a temporary pause?

Jim O’Neill: I lean towards the latter, although I hope I’m wrong. China’s huge population means that if it succeeds in doubling GDP per capita by 2035, it is going to become as big as the US in dollar terms, and much bigger at some point. The US won’t like this as it is obsessed about being the biggest – witness its anger in the 1980s when it looked like Japan would become a serious rival.

However, I have detected an increasing recognition over the past few years that the US can’t pressure China in the way that it has every other country in the past. Still, I’m sceptical that this will translate into a permanent improvement in relations – a pity, as 80% of the global GDP growth we’ve had since 2000 has come from the US and China.

Matthew Partridge: Could China fall into the middle-income trap, where growth slows to a crawl before it reaches the level of a fully developed country?

Jim O’Neill: China certainly has its problems and needs to continue its reforms. The property sector is troubling, while its demographics have passed their peak. It also needs to give people who have migrated from rural to urban areas full rights, as a two-tier social system still exists in the cities. One reason the domestic savings rate is so high is that those people have no land or property, and can’t buy either.

However, if anything, Chinese productivity might be accelerating. I recently read that while exports to the US are down something like 10% year on year due to tariffs, exports to the global South are rising sharply. China is now responsible for 20% of global manufacturing. Most importantly, it is moving up the value chain and is no longer just relying on producing low-quality goods based on cheap labour.

Matthew Partridge: What about India?

Jim O’Neill: India is such a fascinating, complex place. It is in a sweet spot demographically and it is urbanising dramatically. When I was there last year I was pleasantly surprised by the considerable improvements in urban transport and infrastructure, with airports and roads vastly improved. Digitisation has also helped people on low incomes and those in rural areas secure access to both public services and financial products. You could even say that India is where China was 25 years ago.

Still, India should be capable of growing by 10% a year, as China did at the same stage. There are some very obvious major reforms that the Indian leadership should implement. For example, the amount of waste and inefficiency in agriculture is enormous, and there are still 300 million people who can’t really read or write. China is also very protective of many of its industries, with all sorts of barriers to foreign competition and foreign investors.

Matthew Partridge: Switching topics, are you sceptical about the AI revolution?

Jim O’Neill: Given the colossal amount of wealth being created for the owners of AI, we need to make sure productivity starts to improve – and for this process to benefit the entire economy. Otherwise, you will start to see a backlash against capitalism, as shown by the victory of the populist Zohran Mamdani in New York. One exciting way in which AI could definitely benefit the public is in healthcare, especially in combating the assumption that healthcare costs are going to just keep rising forever.

Matthew Partridge: Is there a risk that the government spends huge amounts on building infrastructure for these data centres only for the expected demand to fail to materialise?

Jim O’Neill: Yes. It bothers me that, up until now, there have been few incentives to develop many of the world-leading technologies that we have, especially in the North of England, such as small modular reactors. Then Donald Trump comes over with some of his big technology pals, saying they’ll do this, that and the other, and then suddenly you’re reading about potentially 10 versions of SMRs possibly being built in Teesside. So instead of trying to do that to help cut our own energy costs, we’re doing it in order to support them.

Matthew Partridge: How did you become chair of the venture fund Northern Gritstone, and what do you hope it can achieve?

Jim O’Neill: After I finished my career as a global banker and economist, I chaired the Cities Growth Commission, which came up with the idea for the Northern Powerhouse. Later on, I served briefly as a government minister under David Cameron to help push it through.

However, during my time there I realised that there were quite a few universities in the world’s top 100, and we were taking all these brilliant students with superb research from all over the place, only for them to disappear after they had finished their studies.

Given that many of these innovations involved areas of low productivity, I recommended that policymakers should do something to encourage more spin-outs that could add economic value in these regions. And so, when the idea of Gritstone came up from the three founding universities – Sheffield, Leeds and Manchester – I was asked to be chair because of my time working on the Northern Powerhouse. And I didn’t hesitate to say yes because I thought it was very exciting. If Gritstone works, it could help boost the productivity of the North. I have found it very stimulating.

Matthew Partridge: What do you think could be done to encourage more entrepreneurship in the UK?

Jim O’Neill: Sadly, there is no magic bullet when it comes to encouraging risk-taking and entrepreneurship. Even the decision of British institutional investors to allocate more of their funds to gilts rather than domestic shares has been sensible given our low productivity growth and the poor performance of the FTSE. So, as with AI, there is no point getting them to put more of their money into UK shares unless that helps the wider economy.

That said, I would like to see institutions such as the British Business Bank given a bit more freedom to think of itself along the lines of Singapore’s Temasek (a mixture between a sovereign wealth fund and an independent global investor). It should see itself as encouraging growth investment by being a key investor as opposed to being a bank. I would also like to see more support for institutions such as Gritstone, while local authorities’ pension funds could also provide more genuine risk capital.

Finally, I have been worried by much of the pre-Budget pressure on the chancellor from certain think tanks to raise capital-gains tax to the same level as income tax. While certain forms of business taxation, especially around sole traders, could be treated more closely to income tax, when it comes to venture capital investing, it is extremely risky; you can lose a lot of money. So it’s very important that tax incentives for genuine risk-taking and rewards are retained.

Jim O’Neill is a former chairman of Goldman Sachs Asset Management and commercial secretary to the Treasury. He is currently chair of Northern Gritstone, a venture capital fund.

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1. The demise of the smartphone

It is hard to imagine life without them. There are 7.4 billion smartphones in the world and the typical user checks them 144 times a day. And yet, 50 years ago we would have said the same of cigarettes. Everyone smoked in cinemas, on trains and, though it seems unimaginable now, on aeroplanes. Once it was clearly shown that smoking was very bad for your health, it went into steady decline. We are just starting to work out just how bad smartphones are for our mental health. There is a growing body of evidence to show they have a negative impact on cognitive ability, memory, attention and sleep, and create addiction and anxiety. That’s just for adults. The impact on teenagers is worse. There are already moves to put age restrictions on usage, and those may get tighter. Over the next decade, people will give up on the smartphone, taking down one of the biggest industries in the world – and with it the app economy.

2. The robo-economy takes off

Despite all the hype, it will become painfully clear during the 2030s that the AI revolution was oversold. The chatbots don’t actually possess any intelligence and, apart from a few very limited tasks, can’t replace human work. Instead, it is robotics that will prove to be the next great wave of technological innovation. Domestic robots will be the biggest growth industry of the 2030s and 2040s, with smart machines performing dozens of small, dull tasks around the home, from mowing the lawn to cooking meals. People will be more than happy to pay for genuinely labour-saving devices, turning robots into a huge industry.

3. The Indonesian miracle

Lots of attention will be devoted to the contest between China and India to become the largest country in the world measured by population, and the only serious rival to the US as the biggest economy. But it is Indonesia that will really be rising up the rankings. By 2050 it will have a population of 321 million and will still be growing strongly (China will be in steep demographic decline by then). Add in a 5% annual growth rate, the annual average rate for the last quarter century, and by the 2040s Indonesia will have established itself as one of the major global economies. The Jakarta stock market will be home to the fastest-growing new companies.

4. A global stock market emerges

The competition between rival financial centres consumes a huge amount of attention. The decline of London, the rise of the US and the emergence of the Gulf bourses worries finance ministers, and companies have to decide where to list their shares. By 2050 a lot of that will seem irrelevant. Even in 2025 it seems surprising that we still have national stock markets. Technology means that we can trade any bond or equity anywhere in the world at any time of day. Over the next 25 years a single global stock market will emerge, hosted on the cloud, with settlement in a universally recognised crypto currency that is accepted everywhere. National stock markets will turn into a relic of interest only to a handful of financial historians.

5. A British revival

When we look back from 2050, it will seem that today’s problems were surprisingly easy to fix. A bond-market collapse late in the 2020s as the country’s debts spiral out of control will prove traumatic and will be followed by a chaotic series of coalitions as the party system fragments. But by the middle of the 2030s, a technocratic government imposed by the IMF, and led by a surprisingly youthful-looking Tony Blair, will start to get the country back on track. Two big changes will make a huge difference. Allowing fracking will enable the country to become the Saudi Arabia of Europe. That will make a corporation tax at Irish levels affordable and trigger a huge wave of inward investment. And switching to a Dutch-German-style social-insurance system for healthcare to replace the NHS will transform the 12% of GDP spent on the medical system. With those two reforms in place, Britain will start to boom again, just as it did under Mrs Thatcher in the 1980s.

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How has monetary policy shifted?

Over the past 25 years, monetary policy in advanced economies has undergone an astonishing, unprecedented transformation – dramatically changing in both scope and scale, and blurring the boundaries with fiscal policy. When MoneyWeek published its first edition, there was a broad consensus on inflation targeting, operational independence for central banks and faith in the ability of short-term interest rates to stabilise output and prices. But those turbulent 25 years have seen a radical shift. From the “Greenspan put” to quantitative easing (QE – printing money to buy government debt), monetary policy has evolved in ways that are highly controversial and politicised. Central banks today have vastly higher balance sheets, in some cases manage entire yield curves (that is, use policy to influence rates across different maturities of government bonds, not just short-term rates) and openly coordinate with fiscal authorities in emergencies.

Why is this controversial?

Because, critics argue, the gigantic balance sheets held by unelected central banks as the result of QE, and their “unconventional” monetary policies, have inflated asset-price bubbles, fostered inequality, led to misallocation of capital, and masked unsustainable public finances. Long-term, the chief purpose of monetary policy is to inspire confidence in the value of money by encouraging price stability. In the short or medium term, the aim of policy is to keep the real economy stable – supporting sustainable growth and employment – and to contain risks. Since the turn of the century, however, independent central banks have radically over-interpreted that brief by consistently coming to the rescue of equities and debt markets in ways that have distorted business cycles and deferred pain. Emergency measures have become the norm, and central banks have ballooned.

How have central banks expanded?

For almost the whole of the 20th century, the central-bank assets of advanced economies, as a proportion of economic output, remained remarkably constant, at around 10%-13% of GDP. But in the aftermath of the great financial crisis of 2007-2008 – as governments everywhere turned to QE – that proportion surged, rising above 20% in 2009-2010. And rather than falling back to normal levels as the crisis stabilised, that proportion then doubled once more during the 2010s to 40% – before spiking up to 70% in the aftermath of Covid. Even by 2024, it was still 50%. That’s a revolutionary change in the size of central banks’ financial assets within a couple of decades. Historically, balance sheets merely reflected operations. Now, they are strategic levers shaping long-term yields and risk premiums – a fundamental conceptual shift.

Was QE justified?

Yes, in the immediate aftermath of the financial crisis, decisive action by central banks was vital in stabilising economies and preventing deflation, says Andy Haldane in the Financial Times. By contrast, “later-stage QE, including purchases made in response to Covid, is harder to justify. With fiscal policy highly expansionary, QE’s primary purpose was to placate fretful bond markets rather than boost inflation” – a worrying step towards “fiscal dominance”. Vincent Reinhart, the chief economist at BNY Investments, co-authored two research papers on QE with Ben Bernanke, chairman of the Federal Reserve from 2006-2014, who instituted QE following the financial crisis. “We did not include a section on how to get out of the policy, or the risks stemming from it,” he now says. “That was a mistake – it was a lot stickier than I thought going in and has opened up a range of complications and potential political influences on monetary policy.”

So it’s been hard to get out of?

Indeed. The current era of gigantic public debt has blurred the lines between monetary and fiscal policy, since rate rises (or quantitative tightening) put up debt-servicing costs and infuriate the likes of Donald Trump. In the UK, quantitative tightening triggers indemnities that require the Treasury – ultimately, the taxpayer – to cover central-bank losses. In addition, by pushing up gilt yields, it makes it more expensive to the Treasury to borrow and service its debts. That makes monetary policy more politically charged than ever, and the target of populists who regard central bankers as sources of unelected and illegitimate technocratic power.

What are the limits on monetary policy?

Conventional monetary policy is a famously blunt tool. It has become blunter in recent decades. Financial globalisation and the absorption of China into the global economy, technological change and demographic ageing have lowered real rates. There’s been a relative decline in floating rate debt, meaning rate changes do not necessarily feed through into the wider economy. And rate-sensitive capital-intensive sectors, such as manufacturing and construction, have diminished in favour of services, which are more labour-intensive and less responsive to interest rates, says Marco Casiraghi, director at Evercore ISI. All of this makes monetary policy harder to frame and execute with confidence.

A tough gig, then?

The Bank for International Settlements says that everyone, from governments to central banks to investors and consumers, needs to become more realistic about monetary policy. The idea that it alone can underpin growth is an “illusion”. And the trade-offs that monetary policy involves will “become unmanageable” without “more holistic and coherent policy frameworks in which other policies – prudential, fiscal or structural – play their part”. Central bankers may be even more powerful than 25 years ago. But in an ever more complex and turbulent century, even they recognise that they are not magicians.

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During the pandemic, profits across the global luxury sector jumped as consumers, unable to spend their disposable income elsewhere, splashed out on high-end purchases. This pulled forward a lot of demand, and over the following years, sales flagged. The S&P Global Luxury index of the 80 largest publicly traded companies engaged in the production or distribution of luxury goods jumped 65% between the beginning of 2020 and the end of 2022. From January 2023 to today, it’s added just 2% excluding dividends.

LVMH (Paris: MC), the world’s largest luxury-goods group, managed to buck the trend until mid-2023, when industry headwinds finally started to affect the group. Revenue fell 2% in 2024 and net income slumped 17%. The decline continued in the first half of 2025. Revenue declined 4% in the first six months of the year and net income fell 22%. However, there are signs that the worst of the slump is coming to an end – and the world’s largest luxury group is ideally placed to ride the recovery.

The tide turns for LVMH

For the third quarter, LVMH reported group sales of €18.3 billion, down 4% year-on-year, but 0.6% ahead of analysts’ consensus. Growth returned in the US market and Asia ex-Japan. Japanese sales declined 13%, but were stronger than the previous decline of 28%. European sales fell 2%, faster than the 1% recorded in the second quarter. One of the most interesting spots was China. Mainland China returned to positive growth in the quarter with management flagging the success of The Louis, a ship-shaped Louis Vuitton store, cafe and exhibition in Shanghai. Local Chinese consumption grew by mid-to high-single digits; Chinese tourists’ spending improved, but remained down by double digits.

LVMH’s results confirm that some level of stability has returned to the market and, for the time being at least, consumers’ spending on luxury goods has stabilised. In a recent note on the luxury sector, analysts at JPMorgan concluded that while “trends remain challenging” across Asia, North America is picking up due to “healthy spending among Americans across income groups, supported by strong equity markets and wealth creation”. It’s the high-end American consumer who is set to pick up the slack for the rest of the world.

According to Berenberg research, the “top-quintile” earners in the US are expected to see the largest benefit from Donald Trump’s recent swathe of tax cuts, with a projected 3.4% increase in after-tax income for the richest. The top 0.1% will see an average federal tax saving of $286,440. The spending power of the top 1% will also benefit from the recent equity rally and lower interest rates. High-net-worth households own the majority of US assets, with the top 1% holding 28% of the total.

This trend was apparent in the results of LVMH’s peer Hermès (Paris: RMS). The firm is more focused on the top segment of the market than LVMH, which has a more diverse portfolio, but its results showed where the strongest demand is emerging. In the third quarter, sales grew 10% excluding headwinds from foreign exchange, with US sales up 14% and Asian sales 6%. Sales of its bags and watches rose 13% and 9%, respectively; perfume sales fell 7%.

LVMH’s fashion and leather-goods arm, the group’s largest, which includes brands such as Christian Dior and Givenchy, and makes up around half of sales, was the worst-performing segment in the first nine months of 2025. But the group’s watches and jewellery arm, which includes Tiffany, grew 2% organically year on year.

LVMH’s strength lies in its diversification globally and across product lines. The group’s management structure also aligns with the quality-first approach to luxury retailing. Bernard Arnault took over LVMH in 1989 and he remains the largest shareholder. He’s inserted his family into key management roles and continues to build his stake on weakness. Under Arnault’s stewardship, LVMH has prioritised investment in brands over short-term margin protection. Some selective deals have also been explored. The latest rumours are around a sale of its 50% stake in Fenty Beauty, which it co-owns with Grammy Award winner Rihanna. Fenty Beauty, which generated around $450 million of net sales in 2024, could be valued at between $1 billion and $2 billion.

Should you add some luxury to your portfolio?

The market is also waiting to see if LVMH makes a bid for Armani. Giorgio Armani’s will named LVMH as a preferred buyer for a minority stake in Armani (along with EssilorLuxottica and L’Oréal) and the deal would make a good fit for the luxury giant. Berenberg has estimated the business could be worth as much as €5 billion-€7 billion, easily affordable for LVMH, and it would boost the group’s exposure to the affordable-luxury market. There could also be scope for the group to improve Armani’s profitability and margins through its economies of scale and its existing distribution networks.

Analysts have thrown their weight behind LVMH in recent months. UBS has upgraded the stock to “buy” and said “we believe that the self-help measures introduced… combined with strict cost management and slowing space expansion, will drive a stabilisation in margins in 2025 and a return of positive… momentum” in earnings per share. Berenberg too has cited self-help measures and stability in key markets as reasons for optimism. As headwinds become tailwinds, it could be time to add some luxury to your portfolio.

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What’s happened?

Earlier this month, the Nobel Prize in economics was awarded to three academics noted for exploring the two most urgent practical questions in their discipline: why do economies grow, and how can we help them do so? Half the $1.2 million (11 million Swedish kronor) prize was given to Joel Mokyr, an American-Israeli economic historian of the industrial revolution in Britain and its scientific and cultural underpinnings. The other half of the prize was shared between Philippe Aghion (of the London School of Economics) and Peter Howitt (of Brown University in the US). The pair are growth theorists best known for their Schumpeterian model of economic growth, focused on innovation and “creative destruction”. The choice of these laureates is a reminder that significant and steady economic growth is a relatively recent phenomenon, merely a few centuries old, and that we take it for granted at our peril.

What drives economic growth?

A growing population, rising productivity and labour-market flexibility are what drive long-run economic growth, and of these, productivity is the biggest factor. As for what drives that, the first building block is having a well-functioning market economy, alongside a stable regulatory regime that allows enterprises to flourish. A second is having access to global markets and high levels of investment in both physical capital and human resources, in the form of skills and education. But all that would mean little without technological innovation. The UK economy is delivering more than 15 times as much output per head of population as it was 200 years ago, mainly thanks to technological advances, particularly in key sectors such as manufacturing, transport and communications. By contrast, there was almost no improvement in living standards whatsoever in the four centuries between 1300 and 1700. This year, the Nobel committee chose to honour academics focused on the economic growth that has lifted billions of people out of poverty over the past two centuries. In the grand sweep of history, it’s been a highly unusual period – and there are no guarantees that it will continue.

What do the Nobel Prize winners say?

Mokyr’s work as an economic historian focuses on why growth took off in the first place. In A Culture of Growth, published in 2016, he argues that from the 17th century, European cultural norms changed in a manner that was conducive to scientific experimentation and discovery, and to the commercialisation of those ideas – especially in Britain. Compared with large and more monolithic states and empires in Asia, Europe’s political geography helped foster that change. Academics and innovators who fell out of favour could seek a safer harbour elsewhere. Governments were also more prepared to allow “creative destruction”, where old firms and products and sectors die, and new ones grow.

Aghion and Howitt were recognised for their theory of sustained endogenous growth through creative destruction. The term “creative destruction” was coined in the 1940s by Joseph Schumpeter to encapsulate the idea that economic progress carries with it significant disruption, churn and displacement of older technologies and firms. The distinctive contribution of Aghion and Howitt, says Peter Kienow in a paper for the Centre for Economic Policy Research, is to have “transformed creative destruction from an evocative metaphor into a rigorous analytical framework” and mathematical model. The Aghion and Howitt framework, dating from 1992, allowed growth theory to integrate real-world micro-data on firm and product dynamics, and built a platform for decades of subsequent work on innovation and growth both by themselves and others – leading to “new insights about the social versus private returns to innovation, the distributional implications of innovation and potential political barriers” to it.

What can this year's Nobel Prize teach us?

The Nobel committee awarded the prize in the hope that the trio’s work would help ensure that growth was maintained and “steered in the direction of supporting humankind”. In accepting their prizes, the three laureates warned against policies that could hamper growth, including by restricting immigration and erecting trade barriers. But for the UK specifically, there are vital lessons above and beyond the need to be an open, trading nation, says Daniel Susskind in the Financial Times. Currently, the country’s growth strategy is focused on building its way out of stagnation. Yet the lesson from Mokyr, Aghion and Howitt is that “serious growth comes from a very different place: discovering new ideas, unleashing innovation and whipping up technological progress. In short, growth comes from the intangible world, not the tangible one”. If the UK had grown at the same rate as the US since the financial crisis, for example, Britons would each now be £8,000 richer (in terms of annual per capita GDP). That’s a massive gap in a short space of time, and it’s been driven by the UK and Europe more widely, falling behind in productivity-boosting technologies.

What should Britain do?

It should “focus on reforming intellectual property rights with the same intensity as planning reform”, says Susskind – which means “confronting the powerful creative industries trying to throttle reform on the use and re-use of new ideas in society”. It should also take research and development more seriously; our spending is below the average for the OECD club of rich nations. It should do far more to attract talented foreigners. It should tackle the pervasive sense within some of our most innovative industries – from finance to life sciences – that the UK is becoming a hostile place to operate. Above all, our education system should embrace new technology, not resist it. “Too many political leaders are drawing on old-fashioned ideas about what causes growth – to little effect.

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Sometimes an idea is so catchy that it doesn’t matter whether it’s true. The “debasement trade” – the claim that investors are starting to price in a severe surge in inflation that will erode the value of money – is a good example. We see it everywhere in headlines at the moment. Yet it’s impossible to see much evidence in markets. To begin with, we have to agree on what is being debased. The US dollar is the favoured target. However, if you look at the dollar versus other major currencies, there is no sign of this happening. Yes, it is down since the start of the year, and still seems more likely to fall than rise against over the next few years if foreign sentiment towards US assets continues to cool. But it has been stable since June. We’re not even seeing weakness now, let alone debasement.

Maybe the debasement is in all fiat currencies, so they won’t fall against each other because they are all equally bad. Instead, they will weaken against real assets. The surge in gold and other precious metals seems to support this. Yet stocks are also doing well, even though they typically struggle in high inflation (they often rise during hyperinflation, but that is a different scenario). More likely, traders are latching onto gold because it’s been going up: record flows into gold exchange-traded funds (ETFs) support this idea. A few months ago, I noted that we were not seeing these flows – now it has changed.

Bond yields and the debasement trade

If markets were genuinely becoming much more worried about inflation, we’d expect to see it in bond yields. While many yields have risen this year – especially longer-term government bonds – this always felt more like markets were pricing long-term uncertainty about government policy and finances, not specifically forecasting inflation. It continues to look that way.

Yields have mostly come down in the last few weeks. Even more significantly, inflation breakevens – the difference between the yields on a conventional bond and an inflation-linked one of the same maturity – are not rising (see above). Breakevens are not a good forecast of inflation, but if markets are functioning normally, they will express fear of inflation through nominal yields that rise faster than inflation-linked ones and thus through widening breakevens.

Of course, we may well see high inflation if governments run large deficits while forcing central banks to cut rates and control yields. But it’s wrong to claim the market’s watchdogs are sounding the alarm. They are clearly not – yet.

What to do if inflation surges will be on the agenda at Turmoil, Tariffs and Trump 2.0, the MoneyWeek Wealth Summit, on Friday, 7 November in London. Our morning keynote speaker, Dylan Grice, will discuss the difficulties of investing in this “high-signal” environment, while our multi-asset panel of Charlie Morris (ByteTree), Charlotte Yonge (Troy), Frank Ducomble (RIT) and Jasmine Yeo (Ruffer) will share ideas on how to hedge the risks. See moneyweekwealthsummit.co.uk for details.

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It is not just the London Stock Exchange that has been suffering a relentless decline. It is happening right across Europe’s main bourses. There was a 15% decline in initial public offerings (IPOs) across the continent in the first half of this year compared with 2024, according to accountants EY. Measured by revenues raised, the decline was 50%. The bulk of the IPO market is now in the US, China, India and the emerging stock markets in the Gulf. Europe is falling behind. Just as in London, firms have been leaving the markets, or have been taken over, and very few new companies have been coming through to replace them.

German chancellor Friedrich Merz has a solution. “We need a kind of European stock exchange so that successful companies such as biotech firms from Germany do not have to go to the New York Stock Exchange,” he told the German parliament last week. “Our companies need a sufficiently broad and deep capital market so that they can finance themselves better and, above all, faster.” Instead of separate exchanges in Paris, Frankfurt, Milan and Madrid, a single unified bourse could list all of the continent’s major companies, offering a scale and depth to match New York.

A single, unified exchange would be a lot simpler for investors, especially from North America and Asia. It would have access to a lot more capital, which might mean valuations were higher. True, with Euronext, which links the Netherlands, France, Italy and Portugal, we already have that. But a pan-European exchange would go a lot further. The London Stock Exchange, which has already dropped out of the top 20 for global listings and has seen a relentless decline in the number of companies traded, would almost certainly join. It is in bad enough shape already, and if a new European exchange were formed, it would be even more irrelevant than it is already if it were not part of it.

Would a single European stock market fix anything?

The catch is that this is just the same old, tired formula of more integration that has dominated policy-making in all the major European countries for the last 30 years. It hardly begins to address the major issues facing every European stock market. Firstly, the whole of Europe has imposed far too many rules and regulations on listed companies. In the City, there are an endless series of governance codes to comply with, including diversity quotas for boards and restrictions on executives’ pay, but it is just as bad across the EU. Companies with more than 500 employees have to comply with rules on sustainability and supply chains that typically run to hundreds of pages. Each one might be well intentioned in itself, but taken together, they add to the cost and complexity of listing a company.

Secondly, crushing taxes and rules across the continent mean there are few new growing companies. The US has an estimated 700 tech unicorns, as start-up companies with a value of more than $1 billion are known, compared with fewer than 200 in the EU, despite the fact that it has a significantly larger population. Companies such as OpenAI and SpaceX have valuations that already run into the hundreds of billions, far larger than anything that is coming out of Europe. In short, Europe does not have nearly enough new companies, the ones that it does create don’t grow quickly enough, and even the handful that do emerge don’t find listing their shares very attractive.

It is hard to see how a single European stock market will do anything to fix any of that. It won’t mean that the listing requirements are less of a burden. In fact, given all the compromises that will be required to make it happen, and all the extra powers that are likely to be handed over to EU officials to regulate it, it will probably make them worse. And it won’t do anything to lighten the taxes or the regulatory overload that now makes it so much harder to start a business in Europe than it is in the US, the Gulf, or much of Asia. All it does is double down on the failed centralising strategy of the last 30 years. It would be far better to have national bourses competing to offer the most attractive forum for listing a company. Having a single stock market won’t make any difference.

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The stock market entered a sharp selloff on Friday 10 October as US president Donald Trump revived threats to slap punitive tariffs on China.

In response to what he perceived as unfair dealings from Chinese counterparts, especially regarding exports of strategically critical rare earth metals, Trump threatened to impose 100% tariffs on US imports from China along with additional controls on critical software.

This latest tariff threat prompted a stock market selloff. The S&P 500, a bellwether for the US stock market, fell 2.7% on 10 October as investors fled US stocks. Risk assets like artificial intelligence (AI) and technology stocks as well as cryptocurrencies (crypto) were particularly hard-hit.

“The Nasdaq [plunged] over 3.5%, with tech stocks hit hardest because of their reliance on rare earths from China,” said Victoria Scholar, head of investment at Interactive Investor.

The S&P 500’s drop marks the US stock market’s biggest selloff since the height of tariff disruption back in April.

Underscoring their greater volatility compared to equities, crypto markets bore the brunt of the stock market selloff.

“At one point, Bitcoin bottomed out over 13% lower than the all-time highs seen last week, as traders scrambled to close positions,” said Derren Nathan, head of equity research at Hargreaves Lansdown.

Is the US stock market crashing?

The latest stock market selloff followed hot on the heels of warnings from the likes of Jamie Dimon and the Bank of England that stock market valuations, particularly in the leading AI and technology stocks which stand to be hit if China and the US enter another trade spat, are dangerously overstretched.

Even before Trump’s latest war of words with Beijing, fears were mounting that the AI megacap bubble could burst. The latest developments are also playing out against a backdrop of diminishing faith in the previously dominant concept of US exceptionalism.

“Downside risks to the [US] economy are mounting,” said Michael Pearce, deputy US economist at Oxford Economics, “with China’s move to apply broader export controls on rare earths threatening an escalation of the trade war.”

Morningstar data shows investors withdrew $87 billion from US equity funds in the four months to 31 August, indicating that despite the US stock market reaching new all-time highs in the meantime, many investors are becoming wary that the US stock market could be about to crash.

The winners from the stock market selloff

While US tech stocks and crypto prices have been hit hard by the stock market selloff, other assets have gained on renewed uncertainty.

Front and centre is gold, which has thrived in the uncertainty that 2025 and the tariff disruption has caused. The price of gold hit another all-time high of $4,079.8 on the morning of 13 October.

“The flight to safety trade has continued to propel gold and silver,” said Scholar. “The US government shutdown provides further uncertainty, pushing up demand for safety assets.. There’s a feeling that many investors, unsure where to put their money, have been watching gold’s appreciation and have hopped on the bandwagon,” she added.

The FTSE 100, meanwhile, fell around 0.9% on Friday following Trump’s tariff threat, but opened 0.1% higher on Monday morning.

Buying the dip – is TACO coming?

April saw the rise of the ‘TACO’ acronym, standing for ‘Trump always chickens out’, when Trump eventually soothed global markets for stocks and bonds by rolling back on some of the most extreme tariffs that he had announced.

Hopes that the TACO trade could be coming into play have risen very early this time around. Trump posted on his Truth Social platform on Sunday 12 October: “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!”

The post appears to have sparked a partial reversal of Friday’s stock market selloff. S&P 500 Futures gained as much as 1.7% during the morning of Monday 13 October.

“We believe the bark will be way worse than [the] bite here,” said Dan Ives, global head of technology research at Wedbush Securities. “Trump and Xi [Jinping, president of China] should be meeting in the next few weeks to discuss some of these topics and likely the 1 November tariff threat overhang will ultimately be removed,” he added.

This optimism appears to be prompting many investors to ‘buy the dip’ on the basis that the worst of the rhetoric between the US and China will be promptly rowed back.

“Traders may be banking on a similar pattern where American indices entered a six-month period of almost unbroken growth helped by a string of trade deals,” said Nathan.

My hope when markets began to wobble earlier this year was that the spotlight would start to shift a little bit away from US equities. This isn’t because I’m a committed bear on America. Yes, I am uncomfortable with how much a typical global portfolio will now have in pricey-looking US stocks when domestic politics are clearly becoming less business-friendly. However, that is about managing risk rather than a firm certainty that the tech boom has yet run its course.

Instead, my concern is that the amount of commentary that hinges on the US market, US economy and US politics – indeed, anything wrapped in the stars and stripes – has become monomaniacal. Markets have far too little idea what is happening elsewhere. Take the entire UK stock market, which is dying in part because there is so little attention paid to the small- and mid-cap segment that it no longer functions. The number of take-private deals at large premiums to the undisturbed price testifies to that.

When MoneyWeek was founded 25 years ago, analysis and commentary in the industry and the media included a range of sectors, countries and assets every week. Coverage began to decline after the financial crisis and worsened as the tech boom and the strong dollar sucked in capital. Now, many areas are neglected for long periods.

Investors are noticing emerging markets again

Consider emerging markets. I wrote about this shift relatively recently, but it bears repeating. After ages in the doldrums, they are having a good year: the MSCI Emerging Markets index is up by 16% in sterling terms in the first nine months (developed markets are up 8%, the US is up 6%). Yet that scratches just the surface of the changes: within the EM universe, India – the main bright spot of the past decade – is off 8%, while China has rebounded 29%. Korea is up 44%. Emerging Europe and Latin America are all doing very well. One cannot argue that there have been major economic or political shifts in most of these countries to change the case for them. The conclusion is that many are simply being noticed once more as flows into the US slow down.

The wider point here is not about emerging markets, but about the merits of keeping some of your portfolio in assets that are sensibly valued even when they are lagging. As private investors, we don’t need to worry about measuring our performance against a benchmark. Our goal is not to wager everything on the top-performing stocks and collect a performance fee. We aim to maximise our odds of earning a solid return and minimise our risks of devastating losses. Paying attention to out-of-favour assets is part of this.

As a final note, the MoneyWeek Wealth Summit – our annual event and MoneyWeek’s 25th birthday – on 7 November in London will run along these lines. Yes, it’s called Turmoil, tariffs and Trump 2.0. Yes, we have a session on AI. But our speakers will be looking at growth, value and wealth-preservation opportunities to suit a world that is mostly not America.

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At private dinners with family and confidants, the Indonesian president, Prabowo Subianto, often speaks admiringly of historical figures such as Abraham Lincoln, Nelson Mandela and Mahatma Gandhi, says Bloomberg. “Yet one name stands above the rest.”

Prabowo’s hero is the late Chinese leader Deng Xiaoping, whom he “reveres both for breaking with party orthodoxy to propel China’s economic miracle and for his resilience – cast aside for years, yet taking power at the age of 74”.

For Prabowo, 73, the similarities with his own biography are striking. An ex-special forces commander, who went into self-imposed exile after the fall of dictator Suharto (his father-in-law) in 1998, he views himself as a “transformative” figure – vowing at his election last year to get the country’s growth back to 8%, while rolling out a raft of popular policies, including a $28 billion free-school-meals programme.

Yet for many of his compatriots, Prabowo’s return inspired dread, says Al Jazeera. “A general once feared across Indonesia and banned from the US” for abductions, torture and other human-rights abuses “has reinvented himself as a ‘cute grandpa’”.

Prabowo’s electoral campaign to woo voters might have worked, but economically things are not going to plan, says the Financial Times.

At the end of August, simmering tensions in the Southeast Asian country erupted into violence when mobs stormed and looted the homes of four parliamentarians, including that of finance minister Sri Mulyani Indrawati. Within a week, she was jettisoned – prompting shockwaves in local markets. Having served in the role for 14 of the past 20 years, the former managing director of the World Bank was “a widely respected technocrat seen by investors as a guarantor of basic economic orthodoxy”. Alarmingly, her dismissal came just as Indonesia’s central bank signed a “burden-sharing” agreement with the government to help finance its sweeping projects – a worrying blurring of boundaries. The new “hurriedly sworn in” finance chief doesn’t inspire much confidence either, says Bloomberg.

When Purbaya Yudhi Sadewa got the call summoning him to the presidential palace, he initially thought it was “a prank”.

Although an able economist, he is not in Sri Mulyani’s class. Perhaps his best calling card, from the perspective of his new boss, is that he is a self-proclaimed supporter of the ideas of Prabowo’s father Sumitro Djojohadikusomo, who was a finance minister in the 1950s and a trade minister in the 1970s. “Sumitronomics”, as he once explained, is all about achieving political and social stability “through the equitable distribution of gains”.

Prabowo Subianto: democracy is 'messy and costly'

Prabowo, whose own fortune is put at about $127 million, isn’t short of a bob or two and has enjoyed a lifestyle to match. He owns a mansion on the outskirts of Jakarta and “a guarded mountain retreat” in West Java, says Al Jazeera.

His current wealth derives from going into business with his brother, Hashim Djojohadikusomo, when he was expelled from the military – the family interests span paper pulp and plantation companies as well as oil, gas, coal and palm oil.

Prabowo was raised in an elite and cosmopolitan environment, notes the New Straits Times: spending time in Switzerland, Singapore, Malaysia and later in London. Returning home in 1970, he enrolled in the Indonesia Military Academy and went on to join the elite Kopassus unit under Suharto.

Prabowo feels “comfortable on the world stage”, but he’s no fan of democracy, once saying that it is “tiring” and “messy and costly”, says The Conversation. “Suharto’s system was based on a Faustian bargain that allowed him to rule corruptly and oppressively in return for high economic growth and development.” Prabowo could well adopt the same approach.

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Is immigration at a record high?

No, net inward migration is currently falling sharply, following a massive post-Brexit surge (the “Boriswave”). That wave peaked in 2023 and since then numbers have been dropping rapidly.

In 2024, total “net migration” (that is, inward minus outward) was 421,000 – half the level of the previous year. Indeed, the fall from 866,000 in 2023 was the biggest one-year drop on record, driven partly by a sharp decline in non-EU immigration for work and study visas following tougher restrictions introduced by the Conservative government in early 2024.

Most importantly, these included a ban on overseas students and care workers bringing dependants with them to the UK.

So why is immigration dominating the news?

Because that huge wave of immigrants following January 2021, when the post-Brexit regime was introduced, has been gigantic by all previous standards.

By late 2023, immigration was running at roughly 1.3 million people a year. Subtract those emigrating in that period (roughly 400,000) and that was record net inward migration of nearly 906,000 people (in the year to summer 2023).

Despite the big drop since then, the current level is still higher than that seen for most of the 2010s and far higher than in the 2000s. In addition, successive governments have been largely unsuccessful at cutting illegal entry into the country.

Indeed, the number of people crossing the Channel increased in the first year of the “smash the gangs” Labour government. There were around 42,000 arrivals in the year ending 30 June 2025, 34% more than the year before, and close to the record levels reached in 2022.

And the public is worried?

Illegal immigration makes up a small fraction of the total (small-boat crossings accounted for about 4% of all immigration last year), but it contributes disproportionately to public unease about the scale of migration as a whole.

The massive surge in small-boat crossings from under 2,000 people a year in 2019 to 46,000 in 2022 (a peak that may well be exceeded this year) coincided with the giant wave of legal immigration under the Tories’ post-Brexit policy of excluding EU citizens but welcoming in skilled workers from the rest of the world on a points-based visa system.

Since 2020 Britain’s non-EU foreign workforce has grown to 3.2 million – more than double its pre-pandemic size.

Whatever the economic benefits, that rise means that public concern over immigration is at its highest since polling company Ipsos started asking the question in 1974 (with the exception of a short period during the 2015 European migrant crisis).

Last month, almost half of Britons listed immigration as one of the top issues facing the UK.

Immigration statistics: is Britain a global outlier?

Not for asylum claims, but very much so when it comes to overall immigration.

When it comes to asylum seekers, numbers have soared around the developed world.

The UK is a long way down the European league table in this regard, behind Germany, Spain, Italy and France.

In terms of the overall number of asylum seekers in the country – about 1 in 800 of the population – we are just below the OECD average, although the likelihood of being granted asylum in the UK, once you’ve arrived, is higher than in most peer nations.

Conventional legal migration has boomed, too. In 2023 about 6.5 million moved to the 38 countries that make up the OECD rich-nation club through permanent migration routes. Of those 38 nations, the UK was second only to the US in terms of total immigrants.

How many are students?

On that measure, we topped the chart: the UK had more people arriving as students than any other country in the world, followed by the US, Canada and Australia.

In other words, we are global outliers only as a result of the policy decision taken post-Brexit to adopt a relatively low bar in terms of attracting skilled workers from outside Europe, open the doors wide to health and care sector workers, and to woo foreign students.

In the year to June 2025, almost half of all immigrants (47%) were people on student visas or their dependants.

Each year, students have been staying longer, leading to widespread concern that the system is being abused.

The second largest group is people on working visas, who make up 20%, with their dependants making up 11%.

But that’s now being reversed?

Net migration began falling sharply under the Tories and has continued under Labour. Tighter rules should stem the flow even more. There will be stricter restrictions on skilled workers, limiting migrants to graduate-level jobs, thus returning to the original threshold that was replaced by Boris Johnson when he introduced a points-based system.

Employers who want to recruit foreign workers in sectors facing labour shortages will have to show they are increasing the recruitment and skills training of the domestic workforce.

The Home Office estimates all this (and other measures) will result in around 100,000 fewer visas being granted each year.

What else should change?

There’s a growing recognition – among social democrats as well as right-wing populists – that the current asylum system isn’t working, says The Economist.

Designed to protect refugees in post-war Europe, “it cannot cope with a world of proliferating conflict, cheap travel and huge wage disparities”.

The solution is for rich countries to work together to agree a new framework that encourages refugees to remain as close as possible to their home countries.

As for Britain’s post-Brexit experiment in liberal immigration policy, an honest reckoning would admit “that it has been an economic success but a political failure”.

That’s the trade-off Keir Starmer is now grappling with. He could yet well succeed in pushing immigration down. “If Britons feel a little more pinched and poorer as a result, they might not thank him.”

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A dominant military, political instability and a reliance on foreign aid and bailouts are hardly hallmarks of successful economies. Yet Pakistan’s stock market is booming. The Karachi Stock Exchange KSE-100 index has returned nearly 90% in the past 12 months, compared with the FTSE 100’s 10%, dipping slightly in May when tensions escalated with India. Meanwhile, the Pakistani rupee has been relatively stable by past standards, down 4% over the year.

Market sentiment towards Pakistan improved after it secured a new $7 billion loan from the International Monetary Fund (IMF) last September and promised sweeping reforms, including raising gas and energy prices and expanding the tax base. The IMF deal has “significantly reduced the risk of any kind of near-term balance of payments crisis or debt default”, says Gareth Leather from Capital Economics.

“And by and large, the economy’s actually done quite well since then. So, foreign exchange reserves have recovered [and] exports are doing okay. The economy is broadly on the right track... I think [the equity market’s rise] reflects an easing of concerns that the worst-case scenarios are no longer likely.”

But the rally could also foreshadow a long-term bull market based on a sea change in economic management and potential. Thomas Hugger from Asia Frontier Capital believes Pakistan could become the “Vietnam of South Asia” owing to its large population, low salaries, and abundant natural resources such as gold and copper. “If the current government is really serious about it [reform], I think they could have the chance to become a mini-Vietnam, create a lot of jobs and… create a middle class, and that would be huge.”

Still, Pakistan is navigating a rocky route to recovery, having narrowly escaped a sovereign debt default in 2023 with a temporary IMF deal and funding from Saudi Arabia, the United Arab Emirates and China. Pakistan owes China about $29 billion, roughly 22% of its external debt. Some reforms, such as reducing import restrictions and removing energy subsidies, have increased inflation, which hit 38% in June thanks to high food and petrol prices. Inflation eased to 28.3% in July and 27.4% in August, according to official data.

Roller-coaster ride for Pakistan's economy

Pakistan has a chequered history of boom-and-bust cycles, anaemic growth, poor income-tax collection and a large informal economy. “Debt accumulation has been overwhelmingly used to continue fostering a consumption-focused, import-addicted economy without investment in productive sectors or industry,” say Ammar Habib Khan and Zeeshan Salahuddin in a report for Tabadlab, a Pakistani think tank. “Consumption [via] imports continues to grow, while exports and remittances remain stagnant, thus shortening the boom cycle, leading to another bust and more inflation. This cycle repeats ad infinitum.”

Furthermore, the military has enormous sway over the economy and politics. Any leader who falls foul of the military does not stay in the job very long. Former prime minister Imran Khan has been imprisoned since August 2023 on what he claims are trumped-up corruption charges. “The wild card is the army,” said Hugger. “They have their own interests, and that’s not normal and sometimes not in sync with the economy.

They want to continue to live their great life… these army generals make a lot of money, and it costs a lot of money [for] the state, and that’s the issue here.”

Leather says the army is responsible for Pakistan’s political uncertainty and military coups, which have dragged on the “broader business environment and sentiment that foreigners have towards the country”. That is one of the reasons why the economy has performed so badly over the past few decades. However, nuclear-armed Pakistan may be too strategically important to the US and China to fail, which is a disincentive to reform for the government.

Pakistan’s relations with both have warmed recently. Islamabad secured a 19% tariff on US goods, lower than India’s 25% (and now 50%), and an agreement to develop oil reserves with the Trump administration. Textiles are Pakistan’s biggest export, and the US is Pakistan’s largest export market, with exports of more than $5 billion as of 2024, and imports of roughly $2.1 billion.

Pakistan is not, however, an “especially trade-dependent open economy” compared with other “dynamic” Asian economies, says Leather. “Tariffs aren’t the end of the world in the same way they would be for, say, Vietnam. Having said that, they’re certainly not going to help… if it’s harder to export to the world’s biggest economy.”

Meanwhile, officials recently held talks about deepening ties with China, and the second phase of the China-Pakistan Economic Corridor, part of the Belt and Road Initiative.

What now? Doubts remain as to whether Pakistan can stick to the IMF reforms. “What’s happened in the past in Pakistan is that they’ve made all these promises, they’ve agreed a deal with the IMF, the… worst-case default has been avoided, but then a couple of years later, when the economy’s past the worst, they renege on these deals. They go back to their old ways, and I think that’s the danger with Pakistan, that things are looking okay at the moment. But that is typically the time when they start to renege on their promises,” says Leather. “It’s whether they can… stick with the [IMF] programme for the lifetime of it.”

But Hugger is more optimistic. “You can trade [on a] couple of weeks’ or months’ outlook, but… if you really want to make a lot of money, then you need to be a long-term investor and get it right.”

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Since World War II, the two landmark events in the evolution of money were Bretton Woods in 1944, when the dollar became the de facto global reserve currency, and then the Nixon Shock of 1971, when the US abandoned the last vestiges of its gold standard. There is a shift currently taking place in the global financial landscape, the ramifications of which might, I suggest, prove equally significant.

You might feel it is unimportant. You might feel it is hugely significant. Either way, before making your mind up, you need to understand what is taking place, so that you can position yourself and your family, if you deem it appropriate. You may even be able to profit handsomely from the transition. Here I explain US dollar policy: what is going on and, more importantly, where it is all heading.

Donald Trump solves Triffin’s Dilemma

The US government, as we know, wants to bring manufacturing back on shore. President Donald Trump has said it repeatedly, his vice-president, J.D. Vance, has said it, and so has his Treasury secretary, Scott Bessent, who keeps reminding us that it is now time to prioritise Main Street over Wall Street.

Part of the reshoring of US manufacturing involves tariffs, as we now know all too well. Part of it involves weakening the US dollar to make US exports more competitive. Again Trump, Vance and Bessent have all said this. However, there is a problem, and that problem has a name: Triffin’s Dilemma, named after Robert Triffin, the Belgian-American economist who first identified the paradox in the 1960s.

You might think it’s an advantage to issue the global reserve currency. You can issue dollars. Everyone else has to work for them. The French called it “America’s exorbitant privilege”. But this was a status the US engineered for itself during the Bretton Woods Agreement that determined the monetary order at the end of World War II. What has happened, however, is that it has made the US fat and lazy, especially since 1971 when the US abandoned the ties of the dollar to gold.

To supply the world with dollars, the US must run trade deficits. That is to say it must buy more than it sells in order that US dollars can make their way out into the world. Persistent trade deficits have, over time, eroded its industrial base. Factories and jobs have gone offshore. Foreign nations have used their profits to invest in US capital markets and its debt. At the same time, financial markets – aka Wall Street – have grown and grown. Part of this process was the financialisation of America.

The Trump administration gets this in a way its predecessors did not. Vance has actually called the dollar’s reserve status a “tax” on American producers. What’s more, as this process has continued, more and more the credibility of the dollar itself is being cast into doubt. This tension forces the US to choose between its own domestic economic needs and the stability of the international monetary system. This is Triffin’s Dilemma. Trump wants to revitalise America’s “rust belt”. But there is more to it than that.

The Covid pandemic pulled back the curtains and revealed the extent to which the US has been operating with its trousers down: an excessive dependence on China and its supply chains for too many strategically essential products, especially those related to health, technology and the military. Then, during the Ukraine conflict, Nato found itself unable to match Russian munitions production. The US, in short, is struggling to produce critical goods. It’s why Trump keeps harping on about rare-earth metals. It is vulnerable.

Moving away from dollar towards gold and bitcoin

The answer is to engineer a “managed decline” of the dollar and reduce its role as a global reserve asset. This was already happening organically. China, for example, has been reducing its holdings of US Treasuries for 10 years now – quite gradually – although its US dollar holdings remain above $3 trillion. Meanwhile, China – and many other countries along the Silk Road besides – have been increasing their gold holdings, and quite dramatically. (In my view China has at least four times as much gold as it says it does. You can read more on this in my book, The Secret History of Gold: Myth, Money, Politics & Power.) The process is known as dedollarisation. Just a few months ago, gold overtook the euro to become the second most-held asset by central banks; the dollar itself fell beneath 50% for the first time this century. In fact, gold has just overtaken US Treasuries as a percentage of central-bank holdings worldwide.

We are not seeing a move towards any other national currency as global reserve. There is not one that could take up the role, despite what the bureaucrats in Brussels might try to tell you about the euro. The move is towards the neutral but universal asset that is gold. That suits all the main players. Gold is neutral and both the US (assuming it has all the 261 million ounces of gold that it says it does) and China have lots of it. (US gold has not been audited in over 60 years, hence the doubts.) Indeed, a gold revaluation would be a “win-win” for both China and the US. A higher gold price would strengthen US fiscal flexibility while boosting Chinese consumers’ wealth, encouraging domestic consumption and reducing trade imbalances. (China has been encouraging its citizens to buy gold since 2007.)

There is the potential to leverage the US’s 261 million ounces (8,133 tonnes) of gold reserves, currently marked to market at just $42/oz. There are two ways this might be done. Economist Judy Shelton has proposed issuing Treasuries that are in part backed by gold to offset the inflation/debasement risk to make them more attractive to buyers. The other possibility (which has gone from, as Bessent put it, “we are not doing this” to “we are not doing this yet”) is to revalue the gold from $42 to the current price of $3,400/oz, which would create more than $850 billion of reserves without having to incur any extra debt. That would help with the US’s current fiscal challenges: true interest expenses (including entitlements and veterans’ affairs) currently exceed 100% of Treasury receipts. In short, the US administration is leaning into a weaker dollar and the neutral reserve asset that is gold to rebalance trade and rebuild domestic industry, even at the cost of short-term economic pain.

A showdown between gold and bitcoin

Bitcoin, as the world’s best neutral digital currency, is going to have a role to play in all of this as well. The US is quite happy with that, too, as evidenced by its pro-Bitcoin rhetoric. At the national, corporate and individual levels the US has a lot of Bitcoin. The US itself has 198,000 coins, the most of any nation; Strategy (NYSE: MSTR) has 630,000 and many other companies besides also hold the asset; and 15%-20% of US citizens are thought to own some Bitcoin. Of the eventual 21 million supply, probably 15% has been lost and another 1.3 million are locked up by Satoshi Nakamoto and will likely never appear (he is almost certainly dead) – a hefty chunk one way or the other.

Which brings us to the recent Genius Act. This effectively nixed central bank digital currencies (CBDCs): the Federal Reserve Bank is now not allowed to issue them just as, irony of ironies, the EU’s Christine Lagarde was planning to phase them in. However, the act supported stablecoins (that is, coins backed by dollars) as a private-sector alternative. The more bitcoin grows, the more the stablecoin market will grow. Today, roughly half the entire US dollar stablecoin market, estimated at $250 billion, is invested in US Treasuries (maybe 2% of the overall Treasuries market). Tether is the world’s seventh-largest buyer. As the stablecoin market grows, so will its demand for Treasuries.

The market is small, but growing rapidly. Projections of its growth range from $500 billion in 2035 (JPMorgan’s guess) to $2 trillion (Standard Chartered) and $4 trillion (Bernstein). “If the stablecoin market meets these growth projections,” says the Kansas City Fed, “it could lead to a substantial redistribution of funds within the financial system.” In other words the stablecoin market is going to help the US fund its debt, just as other nations move away from Treasuries to gold and bitcoin. Gold might suit the US as a neutral currency, but bitcoin suits it better, especially if there are complications surrounding the Fort Knox gold, which it seems there are. Why no audit yet?

It’s likely a few years from now, there is going to be some sort of showdown between gold and bitcoin in the battle for primary reserve asset status. It’s unlikely to be both. Governments will favour gold, as they have lots of it. Tradition is on their side. Eternal gold has a track record that is unrivalled. But it is an analogue asset in a digital world. Bitcoin is much more practical. Which will win out? Practical digital or impractical analogue? This is a contest that is still a way off. For now all roads lead to gold and bitcoin as the world dedollarises. Own both is what I say.

Britain left behind on both gold and bitcoin

Needless to say the UK is absolutely clueless in all of this. The government sold two-thirds of its gold in 1999 and the Financial Conduct Authority regulator has made it near impossible for UK citizens to buy bitcoin. Word is that the chancellor is now planning to sell the country’s bitcoin holdings – though as these are confiscated this is legally problematic. The UK has recently overtaken China to become the largest holder of US Treasuries in the world after Japan, just as everybody else is dumping them. It is making no attempt to buy any gold either. We really have clueless clowns running the show.

Meanwhile, with the threat of AI and automation to America’s jobs – especially in jobs that involve driving, where millions work – there is the risk of mass unemployment coming quite quickly, and with it plentiful defaults on mortgages and loans. This could force the US to print money, driving inflation and providing yet another reason to own gold and bitcoin, which cannot be debased.

In short, the dollar will weaken significantly over the next three years. The pound is a basket case. National currencies are not stores of wealth. Gold and bitcoin are. Own both as the Trump administration addresses Triffin’s Dilemma through a managed dollar decline. They will use gold and potentially bitcoin to restore US industrial and military strength. This is the shift that is taking place.

Dominic Frisby writes the investment newsletter The Flying Frisby.

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The world has always been an unpredictable place for investors, and it has become more so over the past five years. Digitisation is partly to blame. News can travel from one side of the planet to another in seconds. The news can then be manipulated and redistributed in a heartbeat, sometimes with devastating consequences. Digital technology has also accelerated the pace of change across the economy. Start-ups powered by AI are reaching revenue milestones once thought impossible.

Y Combinator (the start-up accelerator known for backing Airbnb and Dropbox) recently said its latest batch of tech start-ups was growing at 10% per week, an unprecedented rate in a start-up venture. Most of these companies would have had to hire large teams of expensive human coders a few years ago. But today, 95% of the code has been written by AI.

These digital changes are coming at a time when populist political parties have upended the global political order. Donald Trump’s global trade war has disrupted trading networks established over decades and threatened the dollar’s status as a safe haven. Furthermore, the world’s largest countries are drowning in debt, severely hampering their ability to respond to future crises.

Multi-asset trusts offer added protection

Against this backdrop, it is worth considering the place of multi-asset trusts within a portfolio. Maggie Fanari, CEO at J. Rothschild Capital Management, the manager of RIT Capital Partners (LSE: RIT), notes that multi-asset trusts such as RIT “offer investors access to differentiated global strategies, hard-to-reach assets, and long-term structural themes, making them highly complementary to most portfolios… A multi-asset approach gives us the ability to respond decisively to shifting macroeconomic conditions across a market cycle.”

Multi-asset trusts also provide investors with an added layer of protection through diversification. “Diversification is famously the only ‘free lunch’ in finance,” says Alastair Laing, CEO at CG Asset Management and co-manager of Capital Gearing Trust (LSE: CGT).

The closed-ended structure of an investment trust is perfectly suited to diversification and multi-asset holdings, some of which are likely to be illiquid. “Our permanent capital base gives us a structural advantage, enabling us to maintain conviction in high-quality investments… ride out short-term volatility, and allocate meaningfully to less liquid opportunities,” says Fanari.

Of course, investors could build their own multi-asset portfolio – encompassing assets such as bonds, equities, gold and even exposure to illiquid assets, such as private equity and renewable energy – via investment trusts. However, this comes with another set of risks. “This requires significant effort and could be tax-inefficient if capital gains tax is crystallised each time rebalancing occurs,” explains Laing.

Investors pay a fee for a trust’s portfolio management, but they’re paying for the managers’ skill. There are also tax benefits, as the assets remain within the trust. A trust such as RIT also provides exposure to somewhat exclusive private-market themes. “We also benefit from access to specialist managers,” says Fanari. “These specialist partners value our long-term, patient capital.” All of the big multi-asset trusts, Capital Gearing, Personal Assets (LSE: PNL), RIT and Caledonia Investments (LSE: CLDN) offer something slightly different, with the latter more focused on private equity. Capital Gearing and Personal Assets have also favoured a more defensive approach, focusing on bonds (mostly inflation-linked), gold and equities.

Personal Assets’s co-managers, Sebastian Lyon and Charlotte Yonge, say the investment team’s views in recent years have been “shaped by an expectation of regime change”. Inflation, government debt, shifting political sands, economic uncertainty and technological change have created a “world of greater uncertainty, higher inflation and a bond bear market, which began in the summer of 2020. Thus far, the 2020s are looking very different from the 2010s”.

The managers have shifted the portfolio away from risk assets to “ complementary asset classes that may offset falls in equity markets”. They’ve also reduced exposure to the US dollar “as investors increasingly question the dollar’s position as the world’s reserve currency”. Instead, Personal Assets has been adding to its yen holdings. Index-linked bonds play a key part of the wealth-protection strategy for Capital Gearing and Personal Assets. “We consider that the role inflation-linked bonds play in a fiat monetary system is the same as the role gold played under the gold standard – that is to say, the closest asset class to risk-free,” says Laing.

Charlie Morris, the founder and chairman of ByteTree, argues that investors should go one step further. “Hold bitcoin for return as it catches up with gold as a reserve asset, and gold as a hedge. I believe the risk-weighted combination of the two assets is the optimal approach for asset allocators. In my opinion, gold is the reserve asset for the real world, and bitcoin is the reserve asset for the internet.”

Having a small amount of bitcoin in a portfolio has been a sensible decision for the past few years. It illustrates why it’s reasonable to consider a range of assets across a portfolio. Multi-asset trusts can take some of the effort out of this decision-making process. Not all investors will be comfortable with this approach, but it’s worth considering. The goal of a multi-asset portfolio is to reduce risk and volatility via diversification and enhance long-term returns.

“The pain of losses [outweighs] the joy of profits, which can lead to poor investment decisions,” says Laing. “By investing to avoid significant drawdowns, investors can protect their portfolio against their poor, emotion-driven decisions.”

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After a couple of decades in the doldrums, UK banks have performed well over the past 18 months. The FTSE 350 Banks index is up by 70% since the start of 2024, outperforming both the Nasdaq (up 35%) and the S&P Regional Banks index in the US (up 12%).

When it comes to investing in banks, common-sense “buy and hold” investing rarely works: HSBC and Standard Chartered – the best performers over the past 20 years – have seen their share prices fail to keep pace with inflation, while diluting shareholders with capital raisings over the years. A counterintuitive approach has produced superior results: wait until the whole sector’s fortune has turned and then buy the lowest-quality banks. We have seen the same outcome this time: it is Metro Bank (up 196%) and NatWest (up 147%) that have been the best performers.

Two headwinds that UK banks have faced ever since the crisis have now reversed: loss-absorbing equity funding has been restored, while interest rates have risen well above post-crisis lows. Low interest rates are normally seen as a positive for banks, but when the cost of money falls too low, the banks’ “free float” from current account deposits – a reliable and cheap source of funding – don’t enjoy any relative advantage versus funding in wholesale debt markets.

Of course, if UK banks had not lent out so much money in the first place that interest rates needed to be cut below 1%, then they wouldn’t have had to spend the last decade and a half managing the problems caused by low interest rates. However, with the interest-rate cycle returning to more normal levels and equity cushions rebuilt, banks have re-rated from trading at 25%-50% discounts to tangible book value (TBV) to roughly 1.1 times TBV currently.

The banking environment is benign enough that we may even have an initial public offering (IPO) from Shawbrook, a small business lender owned by private equity groups BC Partners and Pollen Street Capital. Shawbrook may float later this year and is targeting a £2 billion valuation. However, that valuation looks ambitious given the performance of past IPOs such as Metro Bank, Funding Circle and CAB Payments, which all fell by more than 80%. These investments did very well for early investors who got in before they listed and received a windfall gain at the expense of public-market investors. Anybody buying into the Shawbrook IPO would need to be sure that sellers are not timing their sale to exit just before problems emerge.

UK bank stocks

Still, even as the environment has improved, questions remain about the long-term growth prospects for UK banks. Household debt – mainly mortgages – currently stands at about 80% of GDP in the UK, above the level seen in the USA and the European Union (although the latter shows wide dispersion, with some countries such as the Netherlands and Denmark approaching household debt close to 100% of GDP). We are close to the limit as to how much household and government debt the banking system can support, which limits domestic growth opportunities.

From 2004 to 2024, Lloyds doubled revenue to £18 billion, yet book value per share shrunk by half to 75p. That’s mainly a result of the ill-conceived “rescue” merger with HBOS in 2008, which at the time had a balance sheet twice the size of Lloyds'. Barclays has grown revenue by 40% to £21 billion over the same period, while book value per share doubled to £5 as of December 2024. Yet earnings per share (EPS) are still down by a third to 35p. The only UK clearing bank to grow revenue, book value and EPS over that time is HSBC. Still, an increase in revenue of 21% and NAV per share up by less than 80% equates to compound annual growth rates of less than 1% for revenue and under 3% for NAV.

Bank stocks in small territories

Growth for UK banks could come from overseas expansion, but here the record is mixed. Bankers, being dull and unimaginative people, like to expand their footprint into countries with large populations, but it has been small, fast-growing territories with strong institutions such as Hong Kong and Singapore that have most rewarded investors.

HSBC (formerly the Hong Kong and Shanghai Banking Corporation), market cap £170 billion, and Singapore’s DBS, market cap £83 billion, have long since outgrown their city-state roots. Although less familiar to most UK investors, DBS’s track record is more impressive than HSBC’s. It is three times the size of Bank Rakyat (market cap £27 billion), the largest bank in Indonesia, which has almost 50 times the population of Singapore. It is also around four times the size of Maybank (market cap £20 billion) in neighbouring Malaysia, which has six times the population.

A large amount of credit for the far greater success of DBS and its peers OCBC and UOB relative to regional neighbours goes back to the Singapore’s first prime minister Lee Kuan Yew, who transformed the country from a swamp to a first world economy, with the help of air conditioning and British institutions. The crucial lesson that while banks are intrinsically linked to their domestic economies, it is strong institutions rather than a large population that make for an attractive investment case.

A bank that didn’t learn – and one that did

In recent years, HSBC has been shrinking its global network as it became obvious even to management that the bloated corporation with 9,800 offices in 77 countries and 243,000 staff was suffering from diseconomies of scale. The most recent annual report says it has trimmed that number down to 58 countries and 211,000 staff. Shrinking a global business is much more challenging than growing. HSBC has exited countries such as Canada, Brazil, Argentina and France, often ignominiously.

It was easy for HSBC to expand into France originally, points out Marc Rubinstein, a former hedge fund manager turned financial blogger – the bank simply offered to pay more than rival bidders to acquire Crédit Commercial de France (CCF) in 2000. Twenty years later, HSBC struggled to find anybody to take CCF off its hands. Private-equity firm Cerberus paid HSBC a single euro to assume $2 billion of tangible book capital, together with 244 branches and nearly 4,000 staff. HSBC booked a $2.3 billion pre-tax loss, alongside a $700 million goodwill impairment charge. Now, a new threat has emerged. App-based banking and payments firm Revolut currently has 52.5 million customers – of whom 14.5 million joined over the past year – compared with HSBC’s 41 million. It is licensed in 30 countries, including Brazil and Mexico, and in 2024 submitted 10 new licences to banking regulators as it works towards a target of 100 million customers across 100 countries. UK-based rivals Monzo, Starling and Atom Bank and others such as N26 (Germany) and Nubank (Brazil) are also threatening traditional branch-based banks.

These neobanks operate with structurally lower costs: Revolut has just over 10,000 staff – that’s 5% of HSBC’s total, despite having more customers. Revolut grew customer balances by 66% to £30 billion, while Monzo saw deposits up 48% to £16.6 billion. While HSBC has $1.65 trillion in customer deposits, that amount has shrunk from the 2021 level. These new entrants are now radically upending how we think about the investment case in banks. Yet perhaps DBS is a case study on how incumbents can respond to disruption.

DBS has won awards for “World’s Best Bank” from Global Finance and Euromoney, and been voted “Global Bank of the Year” by The Banker. More concretely, it has increased revenues fivefold over the past 20 years in US dollar terms – far ahead of HSBC. TBV per share is also up five times in US dollars, and the shares now trade on a multiple of almost 2.1 times.

Much of this success can be attributed to Piyush Gupta, the former chief executive who ran DBS for 16 years before retiring this year. After a meeting in 2014 with Jack Ma, the founder of Chinese tech giant Alibaba, DBS began its digitisation strategy. Staff were encouraged to learn from tech companies, asking not “what would Jamie Dimon do?” but “what would Jeff Bezos do?”. The bank has expanded via strategic deals in Asia, buying Citigroup’s Taiwan consumer unit and transforming its small operation in India by buying Lakshmi Vilas Bank when the latter failed in 2020.

DBS now has 18.4 million customers, up from 4.9 million a decade ago. The market cap of £83 billion implies that each customer is now worth just under £4,700, compared with just £1,800 for Lloyds Bank. So it now looks fully valued. Still, investors looking for banks with strong growth prospects could take on board the lesson of looking for well-run banks in small markets that can expand shrewdly.

Bank stocks in Georgia

Take Tbilisi-based Lion Finance (LSE: BGEO) – previously known as Bank of Georgia – which is listed in London and part of the FTSE 350 banks index. It has grown revenue in US dollar terms by 58 times to $1.3 billion over the past 20 years. Book value per share is up 18 times. I last wrote about Lion Finance in April 2022 when the share price was £12. Today, it is £80.

At the start of 2024, the group has bought an Armenian bank for $300 million. That price equates to just 0.65 times historic book value or 2.6 times 2023 earnings. When questioned about this attractive valuation, management pointed out that there simply weren’t many buyers able to write a cheque for $300 million to buy an Armenian bank. At the end of July, Lion Finance confirmed press speculation that it is in talks to buy a 70% stake in HSBC’s Malta operations (Ardshinbank, an Armenian bank owned by billionaire Karen Safaryan, who made his money in Russia in the 1990s, is also in the running for this deal).

Of course, Singapore is one of the wealthiest countries in the world, with GDP per capita of roughly $90,000 in nominal terms, while Georgia and Armenia both have GDP per capita of under $10,000. DBS is 14 times larger than Lion Finance by revenue and 23 times larger by market capitalisation. However, Georgia and Armenia are on the right path, with the IMF forecasting growth of about 5% a year out to 2030. The main risk to the investment case in Georgian banks is not growth, but failing institutions. Russian president Vladimir Putin considers Georgia to fall within his “sphere of influence” and Bidzina Ivanishvili, the former prime minister and still de facto leader of Georgia, could be forced to degrade the rule of law and press freedom to please his bellicose northern neighbour.

This fear explains the “geographic discount” – the low valuations that the Georgian banks trade at relative to their obvious potential. Lion Finance and its competitor TBC Bank trade on around 1.9 times last year’s TBV – a premium to their UK-based peers, but still a substantial discount to pre-credit crisis levels. However, Lion Finance is forecast to grow revenue and earnings at 15% this year. The shares continue to look attractive despite the risks, trading on just five times forecast earnings for 2026 and 1.3 times forecast TBV. I remain invested.

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There is an interesting change taking place in global equity markets. Investors are shifting their focus from US equities towards global stocks. Emerging markets are leading the charge, but demand for other regions is growing too. The trend is partly a result of valuation. Last year, the valuation premium of US versus international equities reached more than “three standard deviations over the long-term average since 1970”, says Steve Nguyen, fundamental portfolio manager at US investment management group Causeway Capital.

“Even with the underperformance of US vs. international this year, the US valuation premium is still around the two standard-deviation level.” After 17 years of lacklustre performance, European equities, as measured by the MSCI Europe index, are extremely discounted relative to their US counterparts (using the MSCI USA index as a benchmark). They are on a two-year forward price/earnings (p/e) ratio of 13 (MSCI Europe) compared with 21 for the US index.

Within emerging markets, the gap is even wider. Since the beginning of 2021, they’ve underperformed developed market equities by 55%, says JPMorgan. Go back to 2010, and the gap widens to 200%. Much of this is due to China’s performance, or rather lack of it. However, JPMorgan has observed a broadening participation in Chinese equities beyond the country’s world-leading tech sector. There are still plenty of clouds hanging over China’s economy, but policymakers are starting to shift away from regulation towards stimulating the domestic economy.

As a whole, according to JPMorgan, emerging markets are trading at one standard deviation below the 20-year average, relative to developed markets. There has been only one other occasion when they have been this cheap: after 2000, when Asian financial markets were still recovering from the double whammy of the 1997 Asian financial crisis and the dotcom bust. On a price-to-book basis, emerging markets are trading one standard deviation below the 30-year average at 0.5 of book value, the lowest level since 2000 (in 1997-1998 the ratio fell to 0.3).

Emerging markets are both cheap and under-owned, according to analysts. That implies scope for a recovery in both sentiment and valuation. JPMorgan’s team likes India, Korea, Brazil, the Philippines, the UAE and Greece. The latter is an interesting play. The bank notes that investors can book a 10% shareholder yield from the country’s formerly distressed banks, while the economy is also set to grow by 2% this year, with tourism offsetting any tariff hit.

Finding value in global equity markets

The valuation story is highly appealing in international markets. Martin Connaghan, co-manager of Murray International Trust (LSE: MYI), notes that there is “compelling valuation support in Europe and emerging markets, particularly in Latin America and Asia”. He adds: “Investors can still access many of the same structural growth themes found in the US, but at significantly lower valuations.”

While some countries may now look as if they’re heading for turbulence as a result of Donald Trump’s trade war, the reality is more nuanced, says Connaghan. “[Consider] the nature of the business. For example, while India may face high tariffs on physical goods, IT services firms such as Infosys or Tata are less directly affected. Their offerings, such as software, cloud and consulting, aren’t subject to the same tariff structures.”

Small caps present another opportunity for investors. Over the past five years, small caps have faced the same macroeconomic headwinds as large caps, but have still delivered fairly robust returns. The MSCI International Small Cap index has outperformed the MSCI International index (both ex-US) by 250 basis points annually.

“Smaller companies tend to be more domestically focused, which can insulate them from some of the cross-border complexities,” says Connaghan. And while international small caps have traded at a premium to international mid and large caps over the past 20 years, the current valuation is at a slight discount, says Nguyen.

Meanwhile, US management teams used to be far ahead of their international counterparts when it came to deploying buybacks. But recently there’s been an increase in buybacks in regions such as Japan, Europe and the UK. As a result, total shareholder return yields are now often “significantly higher outside of the US [while] the UK total yield is now more than double that of the US,” he adds.

An example is Italian financial services provider Intesa Sanpaolo. Recently added to Murray’s portfolio, Intesa is the number-one domestic bank in Italy. It has a common equity Tier 1 capital ratio of 14%, a cost-to-income ratio of below 40% and a dividend yield of 7%. In addition to Murray International, some of the best trusts to play global value are the Scottish American Investment Company (LSE: SAIN), which has an 86% allocation to global equities with the remaining allocation to infrastructure, bonds and real estate. STS Global Income and Growth (LSE: STS) and JPMorgan Global Growth and Income (LSE: JGGI) all offer dividend yields of between 3% and 4%.

In the global small-cap sector, region-specific trusts have produced the best returns over the past decade. Options include the European Smaller Companies Trust (LSE: ESCT), which has outperformed its sector by 41% over the past five years, or the JPMorgan US Smaller Companies Investment Trust (LSE: JUSC), which has outperformed the small-cap benchmark Russell 2000 index by 0.5% per annum over the past decade. For a play on Japan, consider the Nippon Active Value Fund (LSE: NAVF).

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The emerging-market bull isn’t back quite yet, but investors are seriously considering whether to set one running. Despite notable success stories such as India, when taken as a whole, emerging markets (EMs) have had a dispiriting 15 years as surging US stocks left fund managers with little reason to look elsewhere. Between 2009 and 2024, US equities returned an annualised 14.6% in dollar terms, almost double the 7.4% returns for emerging equities over the same period, says Jeff Sommer in The New York Times.

Yet Donald Trump’s tariff chaos has flipped the script. EMs returned a formidable 14.9% in the first half of 2025, compared with 5.8% for American shares. A brief, but frightening meltdown in US bond markets this spring is driving a reassessment of which countries are the real banana republics. The usual pitch for EMs is that they offer high growth potential, but with greater risk. Yet calculations from MSCI show that in foreign-currency terms, US public markets were actually more volatile than the average emerging market during the first half of 2025 (not news to anyone who checked their share portfolio during April’s fierce market crash).

Emerging markets gain credibility

Trump’s America isn’t the only developed nation coming in for scrutiny. “Post-pandemic, many EM central banks were quicker to raise rates than their developed-market counterparts,” says Devan Kaloo, global head of equities at Aberdeen Investments. “By contrast, several developed market central banks have seen their credibility erode, partly due to delayed policy responses and increasingly strained national balance sheets.” There has thus been a shift in “relative credibility”, with incremental improvements for EMs “versus continued erosion” in some developed markets.

The last EM bull market came during the 2000s as Chinese growth powered up global commodity markets. Between 2001 and the end of 2009, the MSCI EM index climbed nearly 200%, compared with a miserable 4% in the developed world (courtesy of the dotcom and subprime crashes). A straightforward repeat of that golden age, with a rising Chinese tide lifting most EM boats, may not be on the cards again. The EM grouping has grown so diverse that differential performance during the next bull run seems inevitable. East Asian tech leaders, Latin American copper miners and Middle Eastern energy plays are unlikely to all enjoy a simultaneous boom.

If anything ties EMs together today, it is the financial logic that sets them up as a foil to US capital markets. When doubt sets in on Wall Street, EM funds are one of the natural outlets for redirected flows, in rather the same way that a local pub might enjoy an uptick in custom when a patron’s marriage starts to fail.

Historically, a fairly reliable rule is that EM assets will rise when the dollar falls. That correlation was apparently driven by simple financial logic: a cheaper dollar meant cheaper financing costs for EM sovereigns and companies. The growth and earnings outlook thus improved mechanically. Yet today firms in the developing world are increasingly able to borrow in their own currencies rather than taking on the currency risk of greenbacks.

You might have expected the inverse dollar-to-EM correlation to break down as a result, but it hasn’t, suggesting that global capital flows are a bigger factor than balance-sheet effects. Buying EMs may thus be one roundabout way of shorting an overvalued dollar.

Emerging market growth

For now, this year’s EM bounce might be more a symptom of global fund managers trimming their US exposure than the result of any sudden enthusiasm for South African miners or Polish energy plays. In the long term, a fresh EM bull market can’t run on fatigue with America alone.

The classic growth themes – a rising middle class, demographics, rapid economic growth – are still present, but they are no longer a given everywhere. Populations in East Asia are ageing, while much of Latin America stews in the middle-income trap. The need to pick winners and avoid duds makes a compelling case for using actively managed funds.

Kaloo highlights “three key structural developments: rising domestic consumption, technology as a platform, and the global shift toward electrification”. To play the first two, he points to Tencent, the operator of Chinese “super app” WeChat. “Tencent combines the strengths of global tech giants such as Spotify, Meta and Sony. Yet it trades at a significantly lower valuation, despite its strong exposure to some of the world’s fastest-growing consumer markets.” For electrification, he likes Kazakhstan’s Kazatomprom, which is the world’s largest uranium producer and stands to gain as “the pace of demand for energy is growing rapidly around the world”.

Another reason to favour funds is because the value created in emerging economies isn’t always captured on local exchanges. Fadrique Balmaseda, investment adviser to the Ashoka WhiteOak Emerging Markets Trust (LSE: AWEM) says that as of June this year, 11.6% of the portfolio is actually in developed-market shares. For example, “approximately a third of revenues” at LVMH and Hermès comes from Chinese luxury consumers, yet the shares are listed in Paris.

To secure broad exposure, there is the Fidelity Emerging Markets Limited Trust (LSE: FEML), which is up 21.5% this year and carries a 0.81% ongoing charge, and the Templeton Emerging Markets Investment Trust (LSE: TEM), which is up 21% and carries a 1.09% ongoing charge. Reflecting the underlying EM index, both are currently heavily invested in Asian tech plays such as Taiwan-based chipmaker TSMC.

Finally, some of the most intriguing growth stories in the developing world are not taking place in emerging markets at all, but in the even more peripheral “frontier” category. The BlackRock Frontiers Investment Trust (LSE: BRFI) offers exposure, with a notable weighting towards the Gulf states and Turkey.

Vietnam: a roaring – and cheap – Asian tiger

GDP per capita in the Southeast Asian tiger has risen more than fivefold since the mid-2000s, driven by an export-led manufacturing strategy. But Donald Trump’s re-election cast grave doubt on the nation’s growth plans. Vietnam has the third-largest trade surplus with the US of any country. When Trump threatened tariffs of 46% in April, local shares reacted with their worst day in 20 years. Economists made dire predictions of GDP shrinking as much as 4% – a severe recession.

Thankfully, last month, Hanoi pulled off a much better deal. The new 20% tariff (with the threat of 40% on Chinese “trans-shipments”) is hardly welcome, but it isn’t at a level that puts local factories out of the game. Most importantly, with its neighbours slapped with similar rates, there is little reason to think that Vietnam’s status as the region’s up-and-coming manufacturing hub is in peril. The local VN-index has rallied 17% since the US deal was announced on 2 July, and has gained 33% in a year. Concern has shifted to whether an “intense” bout of buying by local punters is sustainable, says Nguyen Kieu Giang on Bloomberg. Retail traders account for more than 80% of local market value, partly representing the absence of large institutional investors in a market that is still classified as “frontier” by index providers FTSE Russell and MSCI. Still, on 11.1 times forward earnings, Vietnam remains notably cheap compared with most regional peers.

And the holy grail might be drawing into view. “There are clear signals that an upgrade in FTSE Russell’s index hierarchy could be announced in September 2025, with official inclusion as early as March 2026,” says a recent report from Dragon Capital. That could unleash hundreds of millions of dollars in passive inflows from investors who track the EM index, and several billion from active funds. It could also pave the way for an even more game-changing upgrade to the MSCI EM index. Growth dynamics show no signs of slowing. “FDI, public investment and corporate earnings growth have all surprised on the upside, leading the government to revise its growth target from 8% to 8.5%”, says Thuy Anh Nguyen, director at Dragon Capital. Dragon Capital’s Vietnam Enterprise Investments Limited (LSE: VEIL) fund is tapping into the country’s expanding middle class through electronics retailer Mobile World Group (MWG). With grocery subsidiary Bach Hoa Xanh, MWG is capturing “the shift in consumer behaviour away from wet markets to convenient modern stores”.

VEIL has been London’s top-performing Vietnam-focused trust this year. Dynam Capital’s Vietnam Holding (LSE: VNH), which has more of a tilt towards smaller stocks, has returned an impressive 169% in five years. VinaCapital’s Vietnam Opportunity Fund (LSE: VOF) takes in a broader range of assets, including private equity.

India takes a breather

While Vietnam enjoys clarity over tariffs, India is still caught in the fog of the trade war. The White House has slapped the world’s most populous nation with eye-watering 50% tariffs, with half that total a punishment for buying Russian oil, and the other half in retaliation for New Delhi’s $45.7 billion goods surplus with Washington. A contrarian might spot a buying opportunity. Trump’s tariff bark tends to be worse than his bite. Some sort of deal seems likely to materialise once the sabre-rattling is done. Tariffs are a real irritant, complicating India’s hopes of becoming Asia’s next electronics-manufacturing powerhouse. But a vast internal economy means that only about 2% of GDP is derived from US exports. Trade battles with Washington simply aren’t the existential economic question for New Delhi that they are for Hanoi.

The real problem is that India’s stock market is losing steam. On a forward price/earnings (p/e) ratio of 22, Indian equities trade at a steep premium to the EM average of 13. Indian blue chips generally deserve these premium ratings. India is a tough place to do business, so the firms that rise to the top are usually very well managed.

Moreover, GDP is expanding at 6.5% a year. But high valuations are vulnerable when earnings disappoint, and that is what has happened recently. As Bharath Rajeswaran and Vivek Kumar M note in Reuters, earnings growth has been in single digits for five consecutive quarters, below the 15%-25% pace that got the current bull market going in 2020. There are suspicions that only determined local retail buying is keeping things afloat.

The local BSE Sensex has crawled 2.5% higher this year, lagging regional rivals. In a curious way, Indian shares now resemble those in America: a market with solid long-term prospects, excellent companies and overenthusiastic retail buyers that is losing steam against a backdrop of bad news and elevated valuations. And rather like America, long-term investors cannot afford to sit things out, even if the short-term set-up is less than encouraging.

The pound’s 11% rally against the rupee this year has left most London-listed India trusts underwater for the year to date. Abrdn New India Investment Trust (LSE: ANII) has lagged during India’s equity boom, but its conservative focus on large-cap, high-quality shares should provide some protection during periods of softness. The small and mid cap India Capital Growth Fund (LSE: IGC) has been a top performer, delivering a 171% gain over the past five years. India’s 5,000-plus universe of listed firms is a stern test of stockpicking ability, and with an average annual return of 15.3% stretching back to 2005, the team has a proven record.

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Two companies – Nvidia and Microsoft – each are worth more than $4 trillion. Together, that’s more than India’s and Japan’s combined annual output. Price is what you pay, as Warren Buffett put it. Value is what you get. Our question for today: how much value will investors get from the Magnificent Seven?

Our Law of Conservation of Value tells us that prices cannot stray too far or too long from value. And value depends on output. Investors ought to be able to look to a future stream of income and from it earn their money back, and more. Even in the dotcom bubble in 1999, the top firms were not as valuable or as concentrated as they are today. Nvidia, Microsoft, Alphabet, Apple, Meta, Tesla and Amazon – together, these firms make up a third of total US stock market value, an amount roughly equal to China’s GDP.

Part of the appeal of these stocks is that they are widely believed to be taking advantage of AI technology. In the case of Nvidia, of course, that is the central appeal. But the others are investing heavily in AI too. In 2024 and 2025, Meta, Amazon, Microsoft, Google and Tesla will put more than half a trillion into AI. The revenue from these investments is expected to be around $35 billion. Amazon, for example, has invested more than $100 billion, which is thought to generate an extra $5 billion in revenue.

We don’t know how reliable or meaningful these figures are. What we do know is that they aren’t very impressive. As in the dotcom boom of the late 1990s, AI is not paying off. Huge investments are being made in the hope of creating AI-based wealth. But so far, the output doesn’t measure up.

You can go to ChatGPT, for example, and pay for the service. Many people use it occasionally – including us. But few pay for it – also including us. This would be fine, except that so much investment has gone into AI development that anything less than spectacular results will look like failure. One estimate, from Goldman Sachs, showed that the Magnificent Seven big tech stocks would have to produce $600 billion in extra annual revenue to make sense of their investment.

How will the AI boom end?

The appeal of the dotcom era was the idea that more information would lead to higher GDP growth rates with less need for capital investment.

Costly trial-and-error expansion would be replaced by less costly, more precise, knowledge-driven growth, or so it was believed. It didn’t work out that way. Productivity and growth rates generally softened throughout the 21st century. Capital investment went down. The internet/information revolution did not compensate for the decline; it seems to have made it worse. In the last half century, the rise in labour productivity in developed economies has declined from about 2% annually in the 1990s to 0.8% in the last decade, says the OECD think tank.

Will that change with AI? Probably not. The defining curse of the information revolution was too much information. It piled up. It got distorted and misinterpreted. It took time and money to store and sort. Much of it was false or useless. Now cometh AI, adding to the problem. Which leaves, at least for now, AI and the Magnificent Seven in an old-fashioned bubble. Stock prices are far higher than actual sales and profits can account for. So one way or another price and value will have to come back together. Some breakthrough might lead to a big burst of gains and growth. More likely is that stock prices will fall.

For more from Bill, see bonnerprivateresearch.com

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Whatever else happens this year, Robin Zeng can claim one pivotal moment. In May, he took the contrarian bet of pushing ahead with a secondary listing of CATL in Hong Kong. It proved transformative, says the Financial Times. Shares in the company, a pioneer in batteries for electric vehicles (EVs), surged, lifting its market value to roughly $166 billion in the world’s biggest IPO of the year.

The float jump-started the wider market out of its post-Liberation Day slump, with the Hang Seng index now up 30% in the year to date. Leading the rally in confidence, amid new optimism about a trade détente between the two superpowers, is China’s battery king – now a Hong Kong citizen and vying with business magnate Li Ka-shing for the title of Hong Kong’s richest person, with a net worth of some $40 billion.

Not that he apparently cares, says The Wall Street Journal. Zeng might have built CATL into a global juggernaut – its batteries were installed in one in three EVs globally last year – but he represents a new kind of tycoon flourishing in Xi Jinping’s China: understated, philanthropic and ready to echo official state talking points. “I don’t want to be the rich guy,” he observed on the eve of the float. “I want to share these riches to create a good society.”

Zeng, 57, emerged during a turbulent period for tech executives and has learned the lessons – leveraging his know-how “and the state’s willingness to throw money at the renewable energy and EV industries” while keeping his head down. He toes the line on Xi’s vision for China, “where ostentatious displays of wealth aren’t tolerated and humility is the sentiment of the day”. His draws inspiration from the early Chinese sage Confucius, with his “lifelong learning and continuous moral improvement”.

How Robin Zeng made his money

Born in 1968 as Zeng Yuqun, he grew up in poverty in a mountain village in the southeastern province of Fujian – near Ningde, where CATL is now based. “A strong student with big ambitions”, Zeng won a place at the prestigious Shanghai Jiaotong University. He quit his first job at a state-owned enterprise in Fujian after just three months and moved to Dongguan to join an electronics manufacturer, studying part-time for a PhD in physics at the Chinese Academy of Sciences. In 1999, he started his own company, Amperex Technology (ATL), producing lithium-ion batteries. Apple was an early customer. Zeng realised his first fortune in 2005, when he sold ATL to Japan’s TDK for $100 million, says The Wall Street Journal. But he “stuck around”, setting up a car-battery division. TDK was banned from the Chinese market because it was a foreign company, so Zeng started CATL in 2011.

“The timing was perfect” – Beijing had begun prioritising EVs and was offering generous subsidies. As with ATL, Zeng built the firm’s reputation on a contract with a blue-chip Western brand, BMW. A big boost came in 2015 when Beijing told global automakers they would only qualify for subsidies if they used batteries from approved Chinese suppliers, including CATL. Within a year, revenues rose from $1.2 billion to $9 billion.

Zeng sees himself as much more than a battery-maker, says the FT. His ambition for CATL is to become “the pioneer” of the broader zero-carbon economy. He’s particularly interested in lowering the energy costs of vertical farming, telling Bloomberg that “if you solve agriculture, then you’ve solved everything”. Yet CATL remains at the mercy of politics. In January, the US added the firm to a blacklist of companies with alleged links to the Chinese military (a claim denied by CATL). That threat might have receded, but it hasn’t gone away. Moreover, entrepreneurs like Zeng are at the whim of Xi, says Desmond Shum, the Hong Kong businessman who wrote Red Roulette. “If you don’t understand this, you’ll be the first one slaughtered.”

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Most bookshops have a section devoted to business titles, and mostly they fall into two categories. In one you fill find volumes with titles such as Flexagility^TM – The Secret of Delighting Customers and Raking in Enormous Profits. You’ll see them in airport bookstalls next to the self-help section. In the other you’ll find titles such as Fleeced, Poisoned and Spied Upon – How Capitalism is Fuelling Inequality, Damaging our Wellbeing and Destroying the Planet. Books in this category are written for people who welcome confirmation of what they think they already know. These words are lifted from a business book that falls into neither of these categories: The Corporation in the 21st Century: Why (Almost) Everything We Are Told About Business is Wrong, by economist John Kay. It is intended, as Kay says in his introduction, for people who would never normally pick up a business book, but who would welcome an “intellectually serious, even sometimes challenging, approach” to the subject, and who might even be led to conclude that a career in business has something more to offer than just financial reward. Kay succeeds in his aim. The result may be, as Ed Smith says in a review for the New Statesman, a book without a theory. But that is no criticism – “because instead of theory it has wisdom”.

"Medicine is for the people. It is not for the profits"

The history and fate of the modern business corporation has been a strange one. On the one hand corporations have delivered products and a standard of living without which our lives would be economically and culturally impoverished, says Kay. And yet most intelligent and thoughtful people have a negative view of business, especially big business. Strangest of all, business in the 21st century describes and conceives of itself in terms that actually “invite that negativity”. For Marxists and their modern descendants on the left, businesses are the site of class struggle, where ruthless capitalists, through their ownership and control of business assets, sweat their exploited workers to maximise profit and fill their pockets. Economists and thinkers on the right have done little to challenge or alter that view except to add “and a good thing, too”. The details of economists’ vision and theories have varied, but all basically see business as an economically efficient arrangement for minimising inputs in terms of labour and resources, and maximising outputs in terms of goods and profits. Business leaders have accepted the characterisation and acted accordingly – to their own misfortune.

Kay opens his book with a case study from the pharmaceutical industry (and expands on the example with many more from other industries in the course of his 448 pages). In the early 20th century, the rise of scientific medicine was gradually replacing older medical practices that relied on folk wisdom and snake oil. The anti-bacterial properties of penicillin were first observed in 1928, but neither government nor business were especially interested until the outbreak of World War II concentrated minds. Howard Florey and Ernst Chain at Oxford University, who were seeking to synthesise the antibiotic, found a supporter in George Merck, the president of the firm that bears his name to this day. Merck was one of the first companies to recognise the life-changing potential of pharmacology and to benefit from it. Merck’s oldest son, also called George, turned the company into a research-oriented business, and it has been listed on the New York Stock Exchange since 1927. The aim of the business was articulated by Merck in 1950, when he told medical students: “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been”. For many years Merck topped Fortune magazine’s list of most-admired companies.

Maximising profits at all costs

The early history of the industry would tend to confirm that this was the guiding credo of all such businesses. But the tide turned when drug companies came under pressure from Wall Street to demonstrate their commitment to securing value for shareholders. Merck’s counterpart at Pfizer had a somewhat different credo: “So far as humanly possible, we aim to get a profit out of everything we do.” Jim Collins’s 1994 business classic Built To Last showed that, judged by stock returns alone, the likes of Merck outperformed their peers. Until, that is, Merck stumbled. It succumbed to the profit-maximising logic, becoming “totally focused on growth” instead – and hence took a starring role in Collins’ 2009 book, How The Mighty Fall. Merck had to withdraw a painkiller amid recrimination and lawsuits in 2004 when it had marketed the drug not just for the minority of patients who would derive benefit, but for the many who might just as well have taken aspirin.

Many more-egregious examples of wrongdoing motivated by profit-seeking will no doubt spring to mind, and not just in the pharma industry. But the point brought out by Kay is that this short history is depressingly typical of modern business. Its products may save millions of lives and improve the quality of life for almost everyone. Its revenues may fund new research and make large profits for investors, including retirement funds. The profits may support philanthropy on a large and global scale. Yet a turn to focus on maximising profits at all costs, and the misbehaviour that predictably follows from that, brings a fall, and explains why the public came to mistrust big business.

It is a “central argument” of Kay’s book that “by excessive emphasis on the transactional nature of business relationships we have undermined not only the relationship between business and society, but also the effectiveness of business, even in transactional terms”. Boeing was a world-leading engineering firm making superlative products that transformed the world until a change in the culture led to a focus on profit. The end result was aeroplanes falling from the sky. General Electric was for much of the 20th century regarded as the best-run company in the US. A ruthless turn to focus on “shareholder value” from the 1980s onward led in the end to the collapse of the firm. Shareholder value disappeared with it. Bear Stearns was once an investment bank that proclaimed, “We make nothing but money”. As Kay drily notes, it “ended up not even making any of that”. The last people to benefit from the pursuit of “shareholder value” are shareholders.

The pursuit of profits vs creating 'rents'

But doesn’t the pursuit of “shareholder value” describe the reality of what businesses are and should be? Are not businesses in fact owned by their shareholders and is it not a corporation’s “social responsibility”, as Milton Friedman put it, to maximise its profits? That view is simply not tenable, says Kay. To start with, figuring out who really “owns” modern corporations, with their complex web of financial, contractual and regulatory obligations, is no easy matter, and even in jurisdictions most friendly to the concept of shareholder ownership (such as the US), actually exercising the rights of ownership and control is far easier said than done. In big modern corporations, it is more likely to be senior management that is in ownership of a business’s general strategy, but even then, the rights and freedom of action associated with that ownership are unlikely to extend as far as might be assumed. The workers themselves, for example, will be bringing not just themselves to work, but knowledge, talents and skills that are not easily ordered about or replaced. Even the things the business actually “owns” may be hard to pin down – Amazon does not own its warehouses or the goods in them; Apple does not make its smartphones.

Success in business today is secured rather by “assembling the collective knowledge of many individuals and by developing collective intelligence – a problem-solving capability which distinguishes the firm from its competitors”. The modern corporation’s essential role is defined, then, not so much by the capital it can amass, the assets it owns, or the numbers of workers it can “exploit”, or by how efficiently it does this or makes tangible things, but by its ability to marshall human capabilities in a unique way that answers to customers’ needs. Success in this endeavour is hard to replicate by competitors, which means the corporate landscape is dominated by monopolies. And what monopolies earn as a reward for achieving that status is not so much a return on capital, or profit, as it is a “rent”. If Lionel Messi were not employed as a footballer, his earnings would be modest, as were the incomes of even the greatest footballers until recent times. The fact that his talents are greatly desired by modern football businesses, which skilfully attract viewers and advertisers in competitive global markets, means he can capture a fortune. The difference is known as economic “rent”.

And that is something to be welcomed. Economic rent – not the same thing as the rightly deplored “rent-seeking” of those who seek to appropriate some of the value created by others, by, for example, political means – is “not an anomaly, but a central and valuable feature of a vibrant economy”. Progress happens when people and businesses create rents by doing things better. The industrial revolution replaced manual labour with machines. Its further development is seeing physical labour replaced with “collective intelligence”. The hallmark of a successful business today is “harnessing collective intelligence that isn’t common property”. Apple, Amazon, Microsoft, Tesla, SpaceX – many modern success stories are based not so much on making something new (mobile phones, shops, computers, electric cars and space rockets were not exactly unknown before the advent of these firms), but on bringing together the right talents to turn what we’re all familiar with into something brilliant we can’t resist. Creating such collective intelligence successfully involves doing many things well, but rarely the things that would be visible to the Marxist or right-wing theories of what a firm is and how it works.

A transactional account of business is hence not just repellent, but mistaken. It does not describe how successful business works – or could work – in modern society. In the modern world successful commercial relationships are not simply instrumental and transactional, they are “social and embedded in a wider framework of communities and teams”, and Kay’s hope is that a “better account of how business and its stakeholders flourish will point the way not just to a better understanding of business, but to the better conduct of business itself”. Just what adopting Kay’s view would mean for business and public policy will be the subject of a successor volume. So those wondering just where Kay’s account differs from the familiar conflict over shareholder and stakeholder visions of capitalism will have to wait for that. In the meantime, readers of all political and ideological persuasions will benefit from reading this clear-eyed account of modern business – of why it should be celebrated, and why it urgently needs reform.

The Corporation in the 21st Century by John Kay (Profile Books, £12.99) is out now in paperback

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US president Donald Trump met Russian counterpart Vladimir Putin in Alaska on Friday 15 August for a much-anticipated summit on ending Russia’s invasion of Ukraine.

The onset of the conflict in 2022 prompted a notable market downturn, and it is no exaggeration to say that much of the world is still struggling in the wake of the economic fallout.

Russia is one of the world’s largest oil producers, and the sanctions imposed against its exports by the US and Europe fuelled runaway inflation by pushing up oil prices.

Ukraine, meanwhile, is a key producer of wheat, often referred to as the breadbasket of Europe. The decimation of its economy has been a key driver of food inflation (which, in the UK, ran at 4.5% in the year to July, according to the latest ONS data).

So, besides the obvious human benefits, there are significant financial implications for Europe, the UK and the world if the conflict can be brought to a close.

Sadly, Friday’s summit didn’t reach any meaningful breakthroughs on that front. The summit concluded without any agreement being announced.

“Finding a solution to the Russia-Ukraine conflict was never going to be easy,” said Hector McNeil, co-founder and co-CEO of HANetf.

What was discussed during Russia-Ukraine peace talks?

It isn’t known exactly what Trump and Putin discussed during the summit. However, Trump’s comments following the talks suggest that the US may be about to formally recognise Russia’s 2014 annexation of Crimea.

If true, McNeil thinks that sets a dangerous precedent.

“It would mark the first time the US has acknowledged the outcome of territorial aggression in Europe,” he says. “Such a move would plunge Europe, and indeed the world, into a more unstable and worrying geopolitical environment.”

Today (Monday 18 August), Ukraine’s president Volodymyr Zelenskyy is set to meet Trump and European leaders in Washington DC. The meeting could lead to a peace deal between Russia and Ukraine, depending on what Zelenskyy is willing to concede, and no doubt what Ukraine can expect to receive in return.

Reports suggest Russia could demand that Ukraine commits to never joining the NATO alliance, but in exchange for this commitment, the country is subject to something akin to the alliance’s Article 5 which states that an attack on one member state is considered an attack on all.

That would, in theory, protect Ukraine from further Russian aggression. As much as Zelenskyy will be loath to officially cede any territory that Russia has taken by force – whether in Crimea or the Donbas region – a concrete safeguard against future attacks such as this could convince the president to compromise in order to end the conflict.

Hopes for a Ukraine peace deal, though dented by the outcome of Friday’s summit, remain alive for the moment.

How might a Ukraine peace deal impact inflation?

The war in Ukraine caused an upsurge in inflation, and it follows that a pause or end to hostilities would have a disinflationary impact, particularly if it enabled an easing of the trade sanctions that have been in place since it began.

Oil prices have been falling this week ahead of the meeting between Trump and Putin. Brent crude prices fell to a two-month low of $65.63/bbl last week, which Jim Reid, global head of macro research and thematic strategy at Deutsche Bank, says “helped to alleviate some concerns about inflationary pressures in Europe”.

Kaan Nazli, EMD portfolio manager at Neuberger, says a ceasefire would offer global disinflation tailwinds. These would be particularly pronounced in Central and Eastern Europe as well as Turkey, and could lower headline inflation rates in the eurozone by 20 to 30 basis points.

“The impact on the UK economy is likely to be slightly better due to the higher reliance on energy imports,” said Nazli, “easing pressure on energy-intensive sectors such as chemicals and manufacturing.”

The investments that could win or lose from a Ukraine peace deal

In essence, a Ukraine peace deal would be great news for risk assets, which typically underperform during periods of turmoil, but it would impact certain investments which have seen gains during the conflict negatively.

Gold is one of these. The events of 2022 prompted a rush to invest in gold as consumers and central banks moved to protect themselves from the impact of the global market downturn.

“In most cases, global conflict and trade uncertainty drive gold prices, and with many hoping for a positive outcome ahead of Friday’s meeting, investors will be keeping a close eye on how the gold market responds,” said Rick Kanda, managing director at The Gold Bullion Company. “A breakthrough in talks could impact gold's safe haven appeal.”

Defence stocks have also been big winners from the conflict, for obvious reasons, but could lose out in the event of a peace deal. Military suppliers like BAE Systems and Rheinmetall fell on 11 August as news of the upcoming summit broke.

It is highly unlikely, though, that European nations would scale back their increased military spend in the event of a deal.

“While a ceasefire may slow the pace of further increase, defence spending is expected to remain structurally higher than before the conflict,” says Nazli.

Similarly, McNeil highlights that geopolitical instability remains rife, especially if recognition of Russian territorial gains prompts other world leaders to chance their arm at military conquest.

“In such an environment, defence spending remains paramount,” he said.

Trump’s EU deal will help blue-collar workers.” So believes Nicole Russell, a columnist for USA Today, “Critics can hate Trump’s personality all they want,” she says, “but the president’s ability to forge trade deals that favour American workers shouldn’t be discounted.” The gist of Russell’s argument is that the deal includes requirements for Europe to buy energy and military equipment from the US. This kind of stuff is made by people wearing hard hats or wielding power tools – that is, by “blue collar” workers.

Russell must not have much free time. If she had, she might have thought this through a bit further. In the first place, why should US government policy favour one group of workers (blue collar) over another group (white collar)? In the second place, the tariffic negotiations also favour very big businesses – oil and defence. How is that a plus for the guys who mostly work for small businesses?

In the third place, the same policies that will supposedly favour US industry output with a 15% tariff on imports also call for taxes of 50% on steel and aluminium, which must be paid by US carmakers and ultimately by car buyers. What good does that do the guy who needs wheels to get to work?

In the fourth place, who does she think pays for the tariffs? Tariffs are essentially a tax, paid by American importers – and then passed along to US consumers. White collar, blue collar or no collar at all – they’re all going to pay. Who else would? Dogs don’t pay tariffs. Inanimate objects don’t. In the end, all government revenues must come from the people.

Has Trump "achieved the remarkable"?

None of it makes sense. The US is running a $2 trillion deficit and heading for a financial crisis. But the trade deals are seen as a political “win” for Trump.

Trump has, says The Wall Street Journal, “achieved the remarkable: raising tariffs by more than the notorious Smoot-Hawley Tariff Act of 1930, while – it appears – avoiding the destructive trade war that followed”. Including the deal struck with the EU, the US will impose an effective tariff rate of about 15% on its trading partners, by far the highest since the 1930s, according to JPMorgan Chase.

But will the deals stick? Trump’s big trade deal with Japan is already falling apart, says The New Republic. A report from the Financial Times shows that US and Japanese officials aren’t seeing eye-to-eye on what exactly was agreed. Mireya Solís of the Brookings Institution told the FT “both sides made promises we can’t be sure will be kept” and “there are no guarantees on what the actual level of investments from Japan will be”. It’s not exactly a done deal with Europe either. Fred Hutchison, CEO of LNG export group LNG Allies, told Energy Intel that both sides can do a lot to encourage additional commercial deals in the LNG sector, but “neither government has any control over what happens commercially”.

Trump got his deals thanks to leverage over other countries’ deep economic and security ties to the US, says the WSJ. But in the coming years, “that leverage will wane as those countries cultivate markets elsewhere and build up their own militaries. The resulting international system will be less dependent on the US – and less stable.”

The markets are less stable too. Already teetering at the tippy-top of their trading range, stocks have become even more overvalued. More importantly, Trump has raised the cost of trading with the US. He must also have increased the desire not to trade with it at all.

For more from Bill, see bonnerprivateresearch.com

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There are two obvious points to make about emerging markets at a time like this. One is that the idea of emerging markets as a single type of investment feels nonsensical and has done for a long time. The emerging-market universe covers a huge range of economies that have far less in common than the developed-market universe, which is already diverse enough. The other is that – regardless of the above argument – one rule still holds: when the US dollar goes down, emerging markets are much more likely to go up.

We have seen the same pattern playing out again this year. The MSCI USA is up by about 7% since the beginning of January, while the MSCI Emerging Markets is up by almost 16% in US dollar terms. Currency moves play a part here, but they are not the whole story: the index is up by almost 13% in local currency terms. This does not mean that every emerging market is doing well. India is notably weak. So is most of Southeast Asia. The mainland China A share market is unimpressive. Still, Hong Kong-listed shares, Korea, Eastern Europe, most of Latin America and the Middle East (excluding Saudi Arabia) have all been fair to outstanding.

Will emerging markets outperform others?

The natural explanation for why a weaker dollar and stronger emerging markets go together is down to capital flows. The dollar is weaker because money is flowing out of US assets (or at least no longer flowing into them) and instead going elsewhere. That money is not only heading into emerging markets, but economies that do not have deep pools of domestic institutional investors are very sensitive to foreign flows and so small shifts can make quite a difference.

The question then is whether this short-term rally can turn into a longer-term bull market. Certainly, the MSCI Emerging Markets looks cheap on a forward price/earnings ratio of about 13. The differential between this and the USA (on a forward p/e of around 23) is far wider than it was a decade ago. The caveat here is that emerging markets looked even cheaper back then (when the forward p/e was about 11). Yet subsequent returns were disappointing, which was in part because earnings growth was weak, though emerging economies grew faster (on average) than developed economies.

This will need to change for the rally to run – and there are signs that it may. Earnings per share for the MSCI Emerging Markets rose 10% last year and JP Morgan forecasts are for a further acceleration to 17% this year (although in this environment, forecasts should be treated as even more uncertain than usual). If so, this should turn into a virtuous circle: better results from emerging markets encourage more investment, more spending and lead to more growth. Note too that even though emerging markets have had a strong 2025 so far, they have actually lagged behind European markets. That feels natural at this stage, since pessimism about Europe has been extreme. However, if the rotation away from the US continues, one would expect them to ultimately outperform.

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Despite a turbulent global landscape in 2025, equity markets have remained resilient, a reminder of how well good businesses often respond to shocks and challenges. And it’s not just world events they’re having to cope with. Persistently high bond yields are raising the bar for equity investors.

When returns on cash in the bank and relatively safe bonds are high, it suppresses their appetite for stocks.

In an environment of uncertainty like this, you need to focus more than ever on quality companies, valuation discipline and portfolio diversification. The Goshawk Global Balanced Fund UCITS ETF (LSE: ROE) delivers on these fronts. Below are three holdings that illustrate the diverse opportunities in global equities.

Three global equities for your portfolio

Mitsubishi Electric (Tokyo: 6503) has long been a sprawling Japanese conglomerate, but recent years have seen rapid progress in corporate governance, aligning with government reforms. The company is implementing a return-on-invested-capital strategy to improve profitability. This has led to restructuring initiatives – such as spinning off the vehicle-electrification unit – to focus on higher-margin operations such as factory automation and air conditioning (vital for data centres).

In addition, its growing defence business, with advanced radar technology, adds another growth pillar. Not only is this company reasonably cheap on traditional metrics, but it also comes with huge balance-sheet value. The latter is key to traditional value investing and our analysis sees the stock trading well below the cost of rebuilding its various franchises.

One of the great opportunities that this market is throwing up is a set of companies that have demonstrated quality and compounding cash flows over many years. In the recent momentum and growth market, a number of these stocks have been left behind.

Thermo Fisher (NYSE: TMO) is one of these. It stands out as a leader in analytical instruments and services for clinical research, diagnostics, and environmental monitoring. Clients include pharmaceutical companies, research institutions and government agencies. From 2013 to 2023 it delivered annual free cash flow growth of approximately 15%.

Growth has moderated following the pandemic, while recent policy headwinds in research funding have reinforced the trend. This has been especially acute in the Trump presidency. Rather than rely on acquisitions, management has remained focused on improving the core business and growth rate. Last year, the company reaffirmed its expectation of long-term organic revenue growth guidance of 7%–9%. Combined with the target of robust cash generation, this supports the thesis that Thermo Fisher remains undervalued relative to its track record.

Seeking global stability and growth at reasonable prices has encouraged us to build a long-term position in Singapore Telecommunications (Singapore: Z74). The company excels at redeploying the strong cash flow it generates at home into higher-growth international markets, notably via Bharti Airtel in India, as well as holdings in Australia, the Philippines, Indonesia and Thailand. Indian mobile telephony is benefiting from easing competition, driving improved free cash flow.

In addition, 5G adoption and data centre investments underpin further expansion for the group. Singapore Telecommunications has also been adept at selling non-core assets to fund new growth and enhance shareholders’ returns. The current 4.7% dividend yield is well supported and highlights continued commitment to payouts.

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Matthew Partridge: In your new book, The Economic Consequences of Mr Trump: What the Trade War Means for the World, you posit that president Donald Trump’s threats over tariffs are real, rather than a bluff, and represent a major threat to both the US and world economies.

Philip Coggan: Yes. Many investors seem to be assuming that Trump will ultimately back down from his threats of swingeing tariffs; markets have recovered from the collapse that took place in April when they were first announced. However, while there is still a chance that this could be correct, this attitude seems complacent.

Ironically, the assumption that Trump is bluffing may end up increasing the risk of tariffs, both because it means that Trump won’t get the concessions that he’s looking for, and because he thinks that the muted market reaction means they aren’t that economically damaging.

Matthew Partridge: What are Trump’s aims, then?

Philip Coggan: In my book, I argue that trying to understand Trump is like trying to nail jelly to the wall. However, I do think that he genuinely doesn’t understand economics and thinks that America’s trade deficit is a sign that America is being “robbed” – the type of mercantilism that was debunked by Adam Smith 250 years ago. He also thinks that returning manufacturing jobs to the United States will help boost his public support.

Matthew Partridge: There has been a wide range of reaction to Trump’s tariffs, from China simply imposing their own tariffs in response to prime minister Keir Starmer agreeing to cut the UK’s import levies. Which road do you see the EU, Canada and Japan going down?

Philip Coggan: I think you can understand the UK and Chinese differences in terms of the strength of their respective negotiating positions. China is a big economy that produces things the US really wants, like the rare-earth materials, as well as cheap goods that help keep down prices.

As a result, China can cause serious pain for the US economy if it wants to. The UK, however, is not only a smaller economy, but depends on the US for its defence. This makes Britain’s negotiating position much weaker; hence the more conciliatory response.

The EU, while economically bigger than the UK, is in a similarly weak position. Firstly, the need to get all 27 countries to agree to any response makes it harder to impose any major across-the-board tariffs, especially when you have countries like Hungary, whose leaders don’t want to antagonise Trump. As with the UK, there is also the security angle. That explains why the EU folded and agreed to what looks like a one-sided deal.

The Japanese faced the problem that many of Trump’s demands didn’t make sense, or were based on things that don’t exist. Take the “bowling-ball test” (the myth that Japanese regulators require imported cars to be able to withstand the impact of a bowling ball dropped from a certain height). The Japanese agreed a deal to protect their carmakers. It is worth noting that importers of Japanese cars will face a 15% tariff but US car producers will have to pay 50% tariffs on raw materials like steel and aluminium.

Furthermore, while both the EU and Japan made vague promises to invest hundreds of billions in the US, there is no sign of legally binding texts, and such promises have been unfulfilled in the past. They may be hoping to wait out Trump’s term before the money becomes due.

Matthew Partridge: If investors are too complacent, what will it take to convince them to take Trump’s threats seriously?

Philip Coggan: One obvious trigger point is the deadline that Trump has imposed at the start of August for concessions from other countries. So, if that deadline passes and Trump decides to go through with the planned tariff hikes, then markets will see that we’re looking at something more than just a 10% tariff on all goods that are imported to the US. Another trigger point could be if he follows through on rumours that he will impose huge tariffs on imported drugs.

Who will suffer most from tariffs?

Matthew Partridge: Are the big losers from Trump’s tariffs likely to be large global firms or smaller domestic firms?

Philip Coggan: It certainly makes sense that big global multinationals will be much more negatively affected than those producing and sourcing inside the US. However, US firms that depend on imported raw materials will also feel some pain, as most larger companies have global supply chains, even if they consider themselves primarily domestic.

Nearly half of all US imports involve either raw materials or components. So, if you depend on imported steel, copper or aluminium, your costs are going to go up quite a lot, which will hurt your profits.

Matthew Partridge: Outside the US, which countries are set to suffer?

Philip Coggan: Well, it depends on how all the tariffs settle down, but I think the biggest losers are going to be those in emerging markets, which have been suppliers to the US in sectors like apparel. You can expect countries like Vietnam, Cambodia and Laos to struggle to find alternative markets for their goods.

The EU is another big loser, and could see at least 1% shaved off its GDP growth, which given the bloc’s mediocre economic growth performance could be quite serious. After all, even with relatively low tariffs, the UK economy is not really growing.

Matthew Partridge: Could Trump’s tariffs cause a global recession?

Philip Coggan: I don’t see the main threat as being some sort of immediate global recession, because these things take time to feed through. But we are already seeing companies cutting, or even completely pausing, their international investment, because they don’t know what the final tariff rate will be.

However, even if there isn’t a crash, tariffs and protectionism make the global economy less efficient at a time when it is already growing rather slowly. It’s important to realise that a lot of the growth during the last 15 years came from China, which is finally slowing thanks to its ageing population. So rather than cause some big implosion, Trump’s tariffs could just speed up the process of global economic entropy.

Will tariffs be a lasting legacy?

Matthew Partridge: Assuming that Trump leaves office in January 2029 (or earlier), do you think his protectionist legacy will endure, or is he just an aberration?

Philip Coggan: Trump’s populism is certainly a very long way away from the free-trade Republicanism of George H.W. Bush, which now seems to be extinct. What’s more, the Democrats are pretty protectionist themselves. During his four years in office, Biden kept most of the Trump tariffs and imposed export restrictions on chips to China (restrictions that Trump has ironically loosened).

So, while you should see a bit more “normality” under a Democratic administration – as they are unlikely to impose blanket tariffs that cover America’s traditional allies or even remote islands populated by penguins in the Antarctic – they may not be as different as you might think.

Matthew Partridge: Are Trump’s trade policies the only thing that could damage the US economy?

Philip Coggan: The tax cuts and spending contained in his so-called Big Beautiful Bill certainly undermines the US fiscal position, which will inevitably lead to both higher interest rates and a weaker dollar.

In the very long run, it could also imperil the greenback’s position as a global reserve currency (the currency in which most global trade takes place), though this may take time, as there isn’t an obvious alternative at present.

More generally, his economic policies, such as cutting federal research budgets and launching an attack on universities, are destroying everything that is great about the US. China is catching up quickly with the US on research spending, and Chinese academics are going home rather than staying in America.

Moreover, a record number of American academics are looking to work abroad.

And these are not things that have a one- or two-quarter impact on economic growth, but could seriously reduce it five or so years down the line. Note that the development of the new generation of weight-loss drugs, which are now generating tens of billions in sales, came from investigating the Gila monster (a type of lizard), which is exactly the sort of basic research that Trump is slashing.

Matthew Partridge: On a more optimistic note, if the US does remain protectionist, could other countries take up the mantle of promoting global free trade?

Philip Coggan: Well, I very much hope they do. The US represents less than 10%-15% of global trade (depending on how you measure it), so if you can keep the other 85%-90% going under WTO rules, then that would reduce the impact. The negotiations over the trade deal between the EU and Latin America’s Mercosur is a really positive sign.

However, since the past 80 years of trade liberalisation has been driven mainly by the US, the withdrawal of the US (and its soft power) from the world stage is very worrying. When the US retreated into isolationism after World War I, it took only 10 years for the global order to start to collapse.

The Economic Consequences of Mr Trump: What the Trade War Means for the World is published by Profile Books (£6.99).

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Markets made a tumultuous start to the week on 23 February following fresh tariff turmoil over the weekend.

On 20 February the US Supreme Court ruled that the basis for most of the sweeping tariffs that Donald Trump imposed on US imports last year is unsound. Trump had bypassed a Congressional vote (which he might well have lost) on his flagship tariff policy by invoking the International Emergency Economic Powers Act (IEEPA).

But the Supreme Court’s ruling confirmed that the IEEPA doesn’t give the president powers to impose tariffs unilaterally.

Following his defeat in the Supreme Court, Trump quickly invoked an obscure piece of legislation – Section 122 of the 1974 Trade Act – which gives the president the authority to impose tariffs of up to 15% for up to 150 days without Congressional approval.

Initially, this was used to impose 10% tariffs on all imports to the US. On Saturday 21 January, Trump announced via his Truth Social platform that he would raise the blanket rate to 15%.

“As investors become increasingly wary about US economic policy, the dollar has suffered fresh falls against a basket of currencies, with the dollar index down 0.35%,” said Susannah Streeter, chief investment strategist at Wealth Club. “Uneasiness is set to spread on Wall Street, with futures markets indicating a retreat when trading resumes later.”

How the latest tariff turmoil could affect your investments

The latest developments look to be bad news for US stocks. Despite initially rising immediately following the Supreme Court’s ruling, the S&P 500 looks to have fallen over the weekend, with S&P 500 futures down on the morning of Monday 23 February.

The FTSE 100 fell during early trading on the same day, but by 9.30am it had rallied to recover most of those losses.

The index “remains resilient amid the headwinds,” said Streeter, adding that it is “up by more than 8% year to date, with mining stocks continuing to benefit from a march higher in metals prices”.

Japan’s flagship stock market index, the Nikkei 225, fell 1.1% on 23 February, though Chinese stocks fared better with the Hang Seng index gaining 2.5%.

The price of gold opened 1.2% higher on 23 February compared to where it closed the previous week, with further geopolitical tension in Iran also helping to return the yellow metal to three-week highs.

“The precious metal climbed back above $5,160 an ounce earlier, a three-week high, before retreating slightly,” said Streeter. “The American military build-up in the Gulf has continued, with Iran so far resisting pressure from the US to restrict its nuclear development programme.”

How do the latest tariff twists impact global trade?

The short-term impact of the back and forth on tariffs over the weekend is that there is much more uncertainty over global trade.

What had looked initially like a simplification is clearly more complex given Trump’s 10% and 15% tariffs could override previously-agreed trade agreements, such as the 10% levy that goods imported from the UK were subject to following an agreement reached in May 2025.

This has prompted markets to consider how global trade will shake out in the wake of this latest disruption.

Some US trading partners are also pushing back against the new blanket tariffs.

“Bilateral deals reached through tortuous negotiations have been thrown up in the air again, creating a cloud of uncertainty,” said Streeter. “Countries are already preparing to retaliate, with the European Union looking set to halt the ratification of a deal with the US and India also postponing its negotiations to finalise an agreement.”.

In a statement, the EU Commission said “A deal is a deal. As the United States’ largest trading partner, the EU expects the US to honor its commitments set out in the Joint Statement – just as the EU stands by its commitments” in response to Trump’s threats to impose 15% tariffs.

The long-term impact of the latest tariff news for the US is also unclear.

“Trump’s Republicans only hold a narrow majority in Congress, and many of them are staunch free-traders,” said Kallum Pickering, chief economist at investment bank Peel Hunt. “It is thus not obvious that Trump will be able to rely on Congress to pass legislation to extend the new tariffs beyond 150 days.”

The Supreme Court defeat also potentially opens the door for the US government to have to repay hundreds of billions of dollars in IEEPA tariffs to importers who paid the now-defunct levies. While this could spark “potential legal battles and administrative chaos”, Pickering also believes it could support US domestic demand by transferring profits and revenues back to US businesses.

If so, that could theoretically benefit more domestically-focused US small cap stocks.

How has defence spending increased globally?

Total military spending by nation states reached $2.72 trillion in 2024, a rise of 9.4% in real terms on the year before, according to the Stockholm International Peace Research Institute. That’s the tenth consecutive year of increases, and the steepest year-on-year rise since at least 1988 – and takes spending on defence to about 2.5% of global GDP. The world’s biggest spenders are the US, China, Russia, Germany and India; together, these five account for about 60% of the total. Last year, spending increased in every region of the world – with especially strong growth in Europe and the Middle East – as geopolitical tensions grew. Average military spending as a proportion of overall government expenditure rose to 7.1%, while world military spending per person was the highest since 1990, at $334.

Which countries saw big jumps in defence spending?

Israel’s spending surged 65% to $46.5 billion – the steepest annual rise since the Six-Day War of 1967 – taking its total to 8.8% of GDP, the second highest in the world (after Ukraine’s 34%). Lebanon’s spending rose by 58% to $635 million; Iran’s fell 10% in real terms. The Middle East’s biggest spender is Saudi Arabia, with an estimated $80.3 billion. But it saw a modest rise of 1.5% and real spending is 20% lower than a decade ago, when the country’s oil revenues peaked. The biggest jump in spending in Asia was in Myanmar, where it rose 66% to an estimated $5 billion. Japan’s outlay is up 21% to $55.3 billion in 2024, the largest annual rise since 1952. Mexico’s spending rose by 39% to $16.7 billion, as part of the government’s militarised response to organised crime. In Europe, Sweden increased its spending by 34% to $12 billion (2% of GDP) in its first year of Nato membership – a direct response to the increased threat from Russia.

What about the rest of Nato?

Germany’s expenditure rose by 28% to reach $88.5 billion, making it the biggest spender in Europe (not counting Russia, where spending grew 38% to an estimated $149 billion – twice the level of 2015 and 7.1% of GDP). Poland’s spending grew by 31% to $38.0 billion in 2024, or 4.2% of GDP. Total spending by Nato members totalled $1,506 billion ($1.5 trillion), or 55% of the global spend. Easily the world’s biggest spender remains the US, where the total rose 5.7% to $997 billion – that’s 66% of the Nato total, and 37% of the world’s. China, the second-biggest spender, upped spending by 7% to a $314 billion, marking three decades of consecutive growth.

What about defence spending in the UK?

It raised defence spending by 2.8% to reach $81.8 billion, making it the sixth biggest spender worldwide (France, with $64.7 billion, is ninth). The UK currently spends 2.3% of GDP on defence, but last month – under intense pressure from the US – joined the rest of Nato (except Spain) in promising to raise spending to 3.5% of GDP by 2035, and 5% once further security-related spending is taken into account. If they achieve that target, Nato members will be spending $800 billion more every year, in real terms, than they did before Russia invaded Ukraine.

Will defence spending drive economic growth?

That’s what politicians are telling voters. Keir Starmer says defence will offer “the next generation of good, secure, well-paid jobs”. The European Commission says it will bring “benefits for all countries”. In reality, such hopes are likely to prove forlorn, says The Economist. Rather, the “most obvious economic consequence of bigger defence budgets will be to strain public finances”, meaning higher deficits and probably higher interest rates – none of which will aid growth.

Historically, military spending is “not a major growth booster”, agrees Pierre Briançon on Breakingviews. A recent paper by the Kiel Institute for the World Economy found the “fiscal multiplier” is often lower than one – meaning that a rise of 1% of GDP in military spending triggers an overall rise in GDP of less than 1% in the short term. Similar analysis by Goldman Sachs estimates that the multiplier in Europe is even lower, at 0.5, meaning that for every extra €100 spent on defence, the region’s GDP rises by just €50.

So defence spending is nothing to get excited about?

Any long-term economic effects will depend on where the extra money comes from and how it is spent. According to Ethan Ilzetzki, professor at the London School of Economics and the author of the Kiel Institute report, any growth boost will be greater if governments choose to fund it through borrowing instead of higher taxes, which would have a negative impact on growth. This will be much easier for low-debt Germany than for higher-debt Britain and France. Moreover, simply setting targets risks wasteful spending on low-value projects. For the economic impact to be significant, it is crucial to focus the spending on research and development, given that “publicly funded innovation often has the effect of spurring private innovation”, says The Economist. Currently, for the EU, expenditure on research and development is a paltry 4.5% of defence spending, compared with 16% in the US.

What else will help?

Greater pan-European co-operation and integration – importantly, including the UK – and a shift away from buying American. Europe’s most pressing need is to create its own “strategic enablers” independently from the US, says Hugo Dixon, also on Breakingviews. That’s military-speak for projects such as satellite-based intelligence, air-defence shields, and a joint command and control system. Such things are expensive and technologically complex, and it makes sense to create them collectively. To get the biggest bang for their buck – militarily and economically – Europe needs to favour its domestic industry. Imports currently account for more than 80% of Europe’s defence procurement, of which three-quarters comes from the US. “To manufacture more weapons at home, national capitals would have to agree common strategic needs, pool resources and keep restructuring the defence sector.”

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Andrew Van Sickle: The developed world has a growth and productivity crisis. Taxes are high, there is growing concern over income and wealth inequality, and the statist populist right and populist left are in the ascendant. Many people think capitalism has failed. You have a different take.

Ruchir Sharma: One of the reasons I wrote this book is that in 2019, there was a survey saying that young Americans thought socialism was preferable to capitalism. That struck me as a hugely significant: I grew up in India, which used to be a socialist country, and I experienced the adversity caused by socialism.

The young typically revolt against whatever the current system is. The current system is labelled as capitalism, but if you look closely, you see that the system we have in place today is, at best, a very distorted form of capitalism. My book explains why.

The essence of capitalism is to give people as much economic freedom as possible. The government’s role is really just that of a traffic cop. It is not supposed to keep interfering. But over time, it has expanded its role more and more. In the two centuries before the 1920s, there was no welfare state in most countries, and government spending was minuscule, around 3% of GDP. Since the 1930s, there has been a steady expansion in the role of the state.

That is especially true of the last 30 or 40 years; the neoliberal era. It is remembered as a time of deregulation and trade liberalisation, with financial markets dominating the news. But state spending as a share of GDP crept upwards. It barely paused under Thatcher and kept climbing under Reagan. In the US, it’s fast approaching 40%; in France, it’s close to 60%. One can hardly call a country capitalist at that level of statism. Regulations have proliferated, too. In the last 20 years or so, the US has introduced 3,000 new regulations a year, but only withdrawn 20. Then the culture of bailouts became entrenched.

Andrew Van Sickle: When did it start?

Ruchir Sharma: The first big bailout of a financial institution was that of Continental Illinois, a bank, in 1984. A ratchet effect soon set in, with each subsequent bailout becoming bigger. Then there was the Greenspan put. In 1987, he intervened explicitly to prop up the stock market. That had never been done before, and it set a crucial precedent.

Andrew Van Sickle: Hence LCTM, the dotcom era and the banking bailouts, all a result of interest rates being too low and blowing up bubbles.

Ruchir Sharma: In 2023, we reached the stage of preventative bailouts. Silicon Valley Bank was rescued in case it caused contagion. Risk has become socialised. This is not capitalism, a key element of which is that companies must be allowed to fail.

Andrew Van Sickle: It is a key vulnerability for those of us who are pro-capitalism in principle, because it is socialism for the rich. In the same vein, one of the side-effects of interest rates being artificially low is that we have zombie companies, unprofitable but clinging on, refusing to allow Schumpeterian creative destruction.

Ruchir Sharma: Zombies, according to the Bank for International Settlements, are those that have not even made enough profit to service their debt for three years in a row; they’re forced to go back to the market to keep raising more debt. They are a bigger problem in Europe than in the US.

The phrase was coined in the 1990s when Japan had many zombie firms, and at that stage, the Western media were saying: “This doesn’t happen in Europe and the US.” But even then, the share of zombies in the US and UK was about 2% or 3% of listed companies. Now, the figure in developed stock markets is 10%. In the US and UK, respectively, it’s 20% and 22%.

Andrew Van Sickle: There is also an interesting section in your book about how competition has been undermined by capitalism being hampered.

Ruchir Sharma: Yes, when it comes to a lack of competition and monopolies, I think the US is even worse than Europe.

Andrew Van Sickle: How so?

Ruchir Sharma: Strong lobbying and a weak antitrust environment.

Andrew Van Sickle: I read elsewhere that in the 1980s, regulators started to skew towards whether a merger could lower prices for consumers, which meant lots of mergers were waved through. There are only two beer companies in the US now. How can this unhealthy market concentration be rectified?

Ruchir Sharma: Just breaking firms up or making their life harder with new rules is not going to be a lasting solution, as they may just grow bigger again or get around the rules. Look at the banking sector. After the crash, we had a lot of regulation, but now the so-called shadow banking sector, where companies can borrow money from various private entities, is proliferating. So, sectors can adjust to regulation.

The other problem is that new rules are a boost for incumbents. They can afford the cost of compliance – smaller, potential rivals can’t. Small rivals can’t afford lobbyists, either. Big Tech firms are rising fast in the halls of power, both in Washington and Brussels, and now account for five of Europe’s ten biggest-spending lobbyists. Consider that in the US, the cost of setting up an investment fund has soared tenfold in the past two decades. This has prompted people to give up and join larger funds, making the market concentration problem bigger.

Andrew Van Sickle: What’s the solution?

Ruchir Sharma: A key move would be to stop these companies from buying smaller ones. They have access to cheap capital and huge war chests. If they see companies becoming a threat, they can just pre-emptively buy them. Stopping that would certainly help.

Then we must get the cost of regulation down so that it is not prohibitive for small companies to set up. These measures should temper the impact of big companies’ lobbying, too.

Andrew Van Sickle: Zooming out a bit, the consequence of all this regulation and interference is a very top-down development model. In this country, it is illustrated by a very heavy-handed green policy. Is this a universal problem?

Ruchir Sharma: I wouldn’t single out specific sectors in this regard; to me, it seems that the overriding imperative is to spend as much as possible on everything: on defence, industrial policy, you name it. What we need is an efficient state that prioritises sensible things.

Andrew Van Sickle: We may have to pin our hopes on a productivity miracle through AI?

Ruchir Sharma: It seems to me that all this government interference in the economy is negating all the advances in technology we have seen – the improvement in PCs, the advent of the internet, and so on. That is the reason we are not seeing a large productivity boost.

We are soaked in debt, 20% of all listed companies are zombies, big companies (hardly known for productivity) dominate, and you have declining social and economic mobility. All these explain why productivity growth is low and stagnant, virtually, in the UK and Europe.

Andrew Van Sickle: This might explain why we haven’t seen much of a kick from AI yet? It sounds as though governments could throttle it before it gets going. Is there anything more specific you think governments should do now to get things going?

Ruchir Sharma: No; as I say in the book, it’s about looking at other countries where the state is efficient, with good outcomes. In the book, I highlight examples like Taiwan, Singapore, or Korea, where governments are tech-savvy and highly efficient, building a state for the 21st century. Taiwan is an impressive example I explore in the book. Switzerland is also worth studying. It’s very rich, state spending is relatively low, and its economic model is heavily decentralised. There are 26 cantons, each with a great deal of autonomy.

Andrew Van Sickle: One headwind governments have, as you note in the book, is demographics. This is part of the growth problem, too.

Ruchir Sharma: There are two drivers of economic growth: population growth and productivity growth. Global growth never really got going until populations started growing in the 1800s, a result of advances in medicine. Then, productivity growth took off with the first industrial revolution. Then, after 1945, we had the baby boom. So we had a post-war golden era of growth.

But growth began to slow down in the 2000s, while population growth peaked a few years earlier. Now both productivity and population growth, especially working-age population growth, has slowed. There are now 50 countries in the world where the working-age population is shrinking.

Yet politicians keep insisting we can return to a golden era of growth; in the US, they talk about a 3% or 4% rise in annual output per year, and 5% in China. The latter is especially unrealistic. No country can grow by 5% if its overall population (not just its working-age population) is shrinking.

It’s a case of recency bias and anchoring bias. Most people’s, certainly politicians’, perspective is skewed by the fact that they grew up in a 50-year golden age for economic growth – a time when population growth worldwide was expanding by 2% a year or so.

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Donald Trump’s 90-day tariff pause was due to come to an end today (9 July). The idea was that the punitive measures outlined on ‘Liberation Day’ would be reinstated for countries without a trade agreement with the US.

However, on Monday (7 July), the president announced an extension until 1 August. He also said letters had been sent to 14 countries including Japan, South Korea and Thailand, detailing the tariffs they would pay from this date.

Most of the levies are similar to those announced previously, reaching up to 40% for countries like Laos and Myanmar. Thailand will pay 36%, and Japan and South Korea 25%. Trump said the rates could move “upward or downward, depending on our relationship with your country”.

On Tuesday (8 July), Trump added that there would be “no extensions” to the new 1 August deadline. He also announced plans to impose a 50% tariff on copper imports and a 200% levy on pharmaceuticals.

Further announcements are expected later today (9 July). “We will be releasing a minimum of 7 Countries having to do with trade, tomorrow morning, with an additional number of Countries being released in the afternoon,” Trump wrote on Truth Social on Tuesday.

An announcement on semiconductor tariffs is also expected soon.

Tariffs beginning on 1 August

Source: White House and BBC.

How have markets responded?

Copper prices surged in the US on Tuesday (8 July), but stock markets have largely shrugged off the latest developments as investors take a wait-and-see approach.

Markets seem to be getting used to Trump’s way of operating. Some of the threats (such as pharmaceutical tariffs) are not new either, meaning investors have already priced in some of the bad news. The Stoxx Europe Total Market Pharmaceuticals Index – a sector index – is down more than 6% so far this year.

Trump’s delay also suggests he is keen to make deals. He previously promised “90 deals in 90 days”, but so far we have only seen trade agreements with the UK and Vietnam, as well as a partial deal with China involving rare-earth metals. His hardball approach hasn’t paid off in the way he might have hoped over the past 90 days.

“The latest delay in enforcing tariffs suggests that Trump would rather make deals than not, and by singling out individual countries such as Japan and South Korea, he is applying pressure to other countries by example,” said John Wyn-Evans, head of market analysis at Rathbones.

Wyn-Evans thinks a repeat of April’s ‘Liberation Day’ sell-off looks unlikely. “Investors tend not to discount the same potential crisis twice and have also resigned themselves to the fact that tariffs are here to stay, however much they might disagree with the principle.”

Will the new tariffs push inflation higher?

Research provider Pantheon Macroeconomics believes the copper tariff will have little impact on the rate of US inflation, but pharmaceutical tariffs could be more meaningful.

“The 50% tariff imposed immediately on all copper imports will boost the average effective tariff rate by a trivial 0.15 percentage points, equivalent to an uplift to the core PCE deflator of just 0.02 percentage points, if fully passed on to consumers,” said Samuel Tombs, Pantheon’s chief US economist.

“A 200% tariff rate on pharmaceuticals would be a much bigger deal, as they account for 8% of total imports. But the president threatened this exorbitant rate after a proposed transition period of at least one year, allowing time for massive stockpiling, which would limit the impact on businesses’ costs and consumer price inflation.”

The country-specific tariffs announced this week are unlikely to have a meaningful impact on inflation either. If you look at the share of US imports that each of the 14 countries have, 10 of them make up less than 1% each.

The two countries with the biggest share are Japan and South Korea, but even tariffs on these two countries aren’t expected to have a significant impact on US inflation.

Imports from Japan and South Korea account for 5% and 4% of total US goods imports respectively. Pantheon calculates that reciprocal tariffs would only apply to 50% of goods imported from Japan and 30% from South Korea, once exemptions and other carveouts (such as separate tariffs on autos) are taken into consideration.

“Accordingly, we estimate that the average effective tariff rate on all US goods imports will rise by just 0.4 percentage points if the 25% reciprocal rate were to be imposed on imports from Japan, and by a mere 0.2 percentage points if imposed on South Korea,” Tombs said.

“That points to tiny uplifts to the core PCE deflator, just 0.04 percentage points and 0.02 percentage points, respectively.”

One announcement that could have a big impact would be higher reciprocal tariffs on the EU. This has not yet been announced, but Trump has previously threatened tariffs of up to 50%, up from a 10% baseline currently. The EU accounts for 10% of all US imports.

“Hiking the reciprocal rate by 40 percentage points would lift the average effective tariff rate by four percentage points and consumer prices by 0.4 percentage points. Nonetheless, we expect a deal with the EU soon, given that the EU stands ready to retaliate and US public and market appetite for more tariffs is limited,” Tombs said.

What can we expect going forward?

If Trump surprises investors with harsher measures than expected and further agreements are not reached before the new 1 August deadline, we could see equity markets drop as markets price in some of the same concerns seen in April. High trade barriers would push up costs for businesses and consumers and weaken the growth outlook.

However, investors are unlikely to be surprised in the same manner as before – and there is also a big question mark over whether Trump would actually do this given how bond markets reacted last time. His tariff announcements prompted a sharp sell-off in longer-dated US Treasuries, with yields spiking as a result.

Experts have put forward several explanations for the sell-off. Hedge funds and leveraged investors may have been forced to sell liquid assets like US Treasuries to raise cash to meet margin calls. Investors may also have sold up in anticipation of a tariff-related inflation spike – bad news for bonds. Alternatively, investors may have reassessed the stability of US Treasuries in light of Trump’s erratic policymaking and decided the risk-reward profile was no longer attractive.

Whatever the reason, the sell-off was enough to frighten the Trump administration into submission last time around. When Treasury yields spike, the cost of US government borrowing goes up. The US currently has $36 trillion in debt, and foreign investors hold a significant proportion of this. If they decide to start dumping Treasuries and yields spike as a result, the US has a problem on its hands.

Speaking at the Investment Association’s annual conference last month, BlackRock’s global chief investment strategist Wei Li suggested that “US debt arithmetic” could keep Trump’s actions relatively contained. “The US cannot afford… to push debt servicing costs to uncontrollably high levels without consequences,” Li said. “Sustainable US debt requires foreign funding. Walking away from the foreign market when debt is that high is not really a solution.”

‘Trump always chickens out’

In recent months, the phrase ‘Trump always chickens out’ – or TACO – has gained traction among Wall Street traders, who have identified a pattern of dramatic policy statements followed by subsequent U-turns.

It is possible we will see something similar this time around as the 1 August deadline approaches – either in the form of another extension or an easing of the initial tariff rates.

Shortly after announcing the new 1 August deadline, Trump said another extension was not on the cards, but if more agreements are struck between now and then (even tentative arrangements as opposed to full-blown trade deals), it could result in an easing of tensions.

In the meantime, investors will turn their attention to the usual drivers of markets – economic data and company earnings.

“The bar is set quite low for US corporate earnings, with just 4% year-on-year growth expected,” said Wyn-Evans.

“Meanwhile, away from the US, there have been some encouraging signs of an upturn in purchasing manager survey readings and increased optimism about the potential for higher growth in Europe as it pursues increased fiscal stimulus, the dismantling of regulatory barriers and more investment in innovation.”

Not everyone is convinced that US exceptionalism is over, though. Global asset management firm BlackRock remains bullish on the US outlook. Its investment institute believes “immutable economic laws” such as the US debt dynamics introduced previously will keep Trump in check.

“We see scope for overall corporate earnings to stay solid even if US growth is dented by tariff-induced disruptions and corporate caution,” its strategists said in a July research note.

Factset estimates published earlier this month suggest the S&P 500 achieved annual earnings growth of 5% in the second quarter. Back in March, analysts had been forecasting 9.4%. If the 5% estimate turns out to be correct, it would mark the lowest level of growth since the fourth quarter of 2023.

Not all analysts are overly concerned, though. “​What matters is that growth remains positive and meaningful. A 5% earnings expansion in today’s environment represents a genuine achievement, demonstrating corporate management’s ability to navigate challenges while maintaining profitability,” said Chris Beauchamp, chief market analyst at IG.

The 90 days since “Liberation Day” are almost up, and the only trade deals agreed to date are with the UK and China. Will US president Donald Trump reimpose the sweeping tariffs that sent markets into a downward spiral? Trading partners, businesses, households and investors will be hoping the answer to that question is ‘no’.

Comments made by the Trump administration last week suggested an extension was looking increasingly likely, with White House press secretary Karoline Leavitt describing the 9 July deadline as “not critical”.

However, when asked whether he would grant an extension in an interview that aired on Sunday, Trump told Fox News host Maria Bartiromo: “I don’t think I’ll need to… [but] I could, no big deal”. Obscuring his stance even further, the president added: “It’s so simple. We’re sending letters out. I’d rather do it now.”

After promising “90 deals in 90 days”, Trump has perhaps been underwhelmed by the progress made with trading partners since April.

A deal between India and the US has been promised for over two months, but reports suggest the two countries are having trouble finalising it. People close to the negotiations told Politico that Trump’s demands to “open up India” have made it difficult for prime minister Narendra Modi’s government to sell the deal to people at home.

Although the Trump administration confirmed a rare-earth deal with China on Friday, 27 June, details also remain scarce. “Silence regarding the terms suggests that there is less substance to the deal than the Trump Administration implies,” said Jeff Moon, former trade official in the Obama administration.

One relative success has been the trade deal with the UK, announced back in May. This will see car and aerospace tariffs cut to 10% and 0% respectively on UK products entering the US. However, the deal kicked in today (30 June) and no further details have been provided on steel and aluminium tariffs. The two countries previously said they would work to reduce these to zero.

Meanwhile, the US and Canada now appear to be working to an extended deadline of 21 July after Ottawa scrapped plans for a digital services tax over the weekend – an attempt to advance talks that had previously stalled.

“It is extremely difficult to predict what the Trump administration is going to announce on tariffs over the next couple of weeks. Although negotiations are underway with multiple countries, the extent to which these can be finalised before 9 July remains very uncertain,” Nicolo Bragazza, associate portfolio manager at Morningstar Wealth, told MoneyWeek.

“Given the high degree of uncertainty, it is unwise for investors to bet on a given outcome as the consequences may be painful if reality does not turn out as expected. Investors need to think ahead and prepare their portfolios for different market scenarios whilst focusing on fundamentals which are more likely to drive returns over the long term.”

What can we expect in markets?

Markets have more than recovered their post-Liberation Day losses over the past three months. The S&P 500 is almost 9% higher than it was at market close on 2 April. If Trump reimposes the original measures, one possible outcome is a drop in equity markets as investors price in some of the same concerns as before – a weaker growth outlook as trade barriers reduce global activity and push up costs for businesses and consumers.

The real question is whether Trump will actually do this given how bond markets reacted last time. His tariff announcements prompted a sharp sell-off in longer-dated US Treasuries, with yields spiking as a result.

Experts have put forward several explanations for the sell-off. Hedge funds and leveraged investors may have been forced to sell liquid assets like US Treasuries to raise cash to meet margin calls. Investors may also have sold up in anticipation of a tariff-related inflation spike – bad news for bonds. Alternatively, investors may have reassessed the stability of US Treasuries in light of Trump’s erratic policymaking and decided the risk-reward profile was no longer attractive.

Whatever the reason, the sell-off seems to have been enough to frighten the Trump administration into submission. When Treasury yields spike, the cost of US government borrowing goes up. The US currently has $36 trillion in debt, and foreign investors hold a significant proportion of this. If they decide to start dumping Treasuries and yields spike as a result, the US has a problem on its hands.

Speaking at the Investment Association’s annual conference this month, BlackRock’s global chief investment strategist Wei Li suggested that “US debt arithmetic” could keep Trump’s actions relatively contained in the lead-up to the 9 July announcement. “The US cannot afford… to push debt servicing costs to uncontrollably high levels without consequences,” Li said. “Sustainable US debt requires foreign funding. Walking away from the foreign market when debt is that high is not really a solution.”

“Trump always chickens out”

In recent months, the phrase “Trump always chickens out” – or TACO – has gained traction among Wall Street traders, who have identified a pattern of dramatic policy statements followed by subsequent U-turns. It is possible we will see something similar this time around – either in the form of another extension or an easing of the initial tariff rates.

“It’s surprising that we have had so few trade deals since the 90-day period began, yet financial markets are currently showing no signs of concern. Investors might simply be wise to Donald Trump’s style of negotiation,” said Dan Coatsworth, investment analyst at AJ Bell.

“The US president likes to push things to the edge and play the game of ‘who blinks first’. He might be hoping that foreign trade officials buckle under the pressure of the imminent timeline and agree to trade terms that are heavily weighted in America’s favour to avoid the worst-case scenario of tariffs reverting back to the ‘Liberation Day’ plan.”

Both Coatsworth and Bragazza point out that any positive news, including an extension of the 9 July deadline, could result in a rally. “Ninety days is not a long time to conduct talks with a large number of countries, and the Trump administration might come out and say negotiations have so far been constructive and need a bit longer to conclude,” Coatsworth said.

The market response could also vary from region to region, depending on the severity of the tariffs and how successful negotiations have been. Trump is unlikely to treat all countries equally and may offer more generous terms to countries with a better relationship with the US. Those with a strained relationship could fare worse. Bragazza highlights the EU as one example, arguing that a “lack of progress on the negotiating front” could result in a “negative market reaction”.

At a press conference on 27 June, European Commission president Ursula von der Leyen said the EU was ready for a deal, but that all options remained on the table. “We are preparing for the possibility that no satisfactory agreement is reached… and we will defend the European interest as needed,” she added. Reports suggest Brussels is resigned to the fact that a 10% baseline tariff is likely to remain. Some level of tariff on automobiles, steel and aluminium is also expected to stay.