The ‘Geopolitical Supercycle’ Is Here. Disruptions Will Be Choppy for Markets. – Barron’s

July 8, 2023

When will the world go back to normal? That’s the most common question geopolitical strategist Tina Fordham hears from business leaders. The answer, unfortunately, is that it won’t.

The world is experiencing a “geopolitical supercycle,” Fordham said Friday in an interview on Barron’s Live. Geopolitical disruptions aren’t new, Fordham said, but they are now having more of an impact on markets than they used to. That is because some of the buffers that kept politics out of the boardroom have been weakened, particularly because of the end of easy money from central banks.

“When we did see dislocation in geopolitics, it just simply didn’t have much of an impact on markets,” said Fordham. “Therefore, it’s logical to expect in a time of less liquidity, these kinds of events will matter more.”

That doesn’t mean the sky is falling—just that it pays to look up. The recent rebellion in Russia by the head of the mercenary Wagner Group, Yevgeny Prigozhin, called into question the stability of a nuclear-armed commodity superpower. But to know how much events like that matter for investors, you have to understand the transmission mechanism from politics to markets.

That is something Fordham can speak to. She was the first chief global political analyst on Wall Street and recently opened her own analytical shop, Fordham Global Foresight, after spending years at Citi.

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“Most multinational corporations have wound down their operations in Russia, and the world—at least the Western world—has largely learned to live without Russian gas supplies,” Fordham said. “So it’s not surprising that markets shrugged it off.”

But zooming out, the emergence of the geopolitical supercycle is disrupting the period of stability that allowed multinational corporations to expand globally as financial markets grew more tightly integrated. The new normal looks more like tit-for-tat sanctions between China and the U.S. China said this week it would impose new export controls on germanium and gallium, metals that are important to chip-making.

Those measures are the very definition of geopolitics, Fordham said. “Geopolitics is what countries do to project power beyond their borders. It doesn’t mean they only use political means to do it.” Tariffs and cyberattacks are part of that power projection. “Of course, that’s still better than all-out war and conflict between the two world’s two largest economies,” Fordham said. But it makes for a “very choppy trading environment.”

Treasury Secretary Janet Yellen’s current trip to China illustrates how messy this environment will be for investors. On one hand, U.S.-China trade hit a record $690 billion last year. That robust commercial relationship weighs against political pronouncements that the two economies can or even should decouple. On the other hand, Yellen is trying to deliver the message that the U.S. reserves the right to refuse to cooperate in certain sensitive national-security issues, like the sharing of advanced semiconductor technology.

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“This is such a tricky row to hoe,” Fordham said.

The other question Fordham gets all the time is about the severe, unpredictable events known as black swans. “And I say, Forget about black swans. The most likely systemic risks are things we already know about.”

One of those is the possibility of a pandemic relapse in the next several years. “That’s boring. So people don’t spend enough time looking at it,” she said. But with trust in institutions at historic lows, vaccine skepticism is rising. A new global health threat could hit differently this time. “It’s a sign of the times when people feel overwhelmed and want a simplistic narrative,” Fordham said.

Write to Matt Peterson at matt.peterson@dowjones.com