In this article, David Jane, Fund Manager at Premier Miton – Macro Thematic Multi Asset Team, discusses how ‘we have entered into a very different landscape, one where many of the old rules and expectations no longer apply’.
The dominant theme of 2025 was the reassertion of US economic and military power, which we call economic nationalism. Already in 2026, we are seeing a continuation of the same theme, with events in Venezuela, Iran and even Greenland. We have seen a significant move away from the globalist mindset, partly as a result of the realisation by the US that allowing China to become the dominant manufacturing power means that the US’s ability to dominate the world military is impossible. Additionally, the rise of China and the US’s reliance on imported goods has led to the US becoming heavily indebted to the rest of the world.
The current US administration is determined to address these issues of US military, industrial and financial decline. There are very significant investment issues to address as a consequence.
Perhaps the most significant implication of this shift is the move from a structurally disinflationary environment to one of higher inflation. While inflation may be falling from its near term peaks, the deeper underlying forces point to it remaining well above the levels of the past couple of decades.
Reasons for higher inflation abound, if we accept that one of the driving forces of the disinflationary period was the efficiency gains from offshoring, it follows that its reversal is inflationary. Resource nationalism is also inflationary, as nations seek to secure resources not from the cheapest source but from the most reliable or friendly source.
The implication of this higher inflation environment is that the era of easy diversification benefits from blending equities with long dated bonds is over. Diversification of equity risk can be found in precious metals, base metals and energy but these will involve many investors having to unlearn many of the beliefs they have come to hold. While bonds may be low risk in the sense that they are less volatile than equity, in the context of a mixed asset portfolio, which is what most investors have, they are adding to risk now that correlations are positive.
Outside of broad asset allocation, there are huge implications within the asset classes of this shift. Previously ignored sectors are now coming back into focus. One of the most obvious is the defence sector. Overlooked in more peaceful times, it has come greatly back into favour. In Europe, the US and even Japan, defence spending has been growing, and continues to grow, rapidly.
Not only is overall defence spending growing but the nature of that spend is changing – with new technologies becoming of much greater importance. Current and future wars are likely to be fought in different domains than the past. Technologies such as tanks, aircraft carriers and traditional fighter jets are being replaced by aerial and seaborne drones. At the same time, the virtual domain is growing in importance, known as cyber warfare, where critical infrastructure and hearts and minds can be targeted. The US is among those racing to catch up or get ahead in these areas which provides huge investment opportunities.
Another area that is gaining renewed attention is the entire natural resources sector. Energy security is obviously now a focus for countries, as borne out by the US’s actions in Venezuela. The sanctions policy has had the exact opposite of the desired effect on the US’s adversaries. The sanctions on Russia, Iran and Venezuela, have benefitted China and India which have had access to these countries’ energy resources at a discount, while Europe and the US have paid premiums for more expensive energy – often from China and India in the form of renewable and fossil fuels or downstream oil products.
This system looks set to reverse. The US has explicitly stated that the Venezuelan oil is now theirs. It will take huge time and investment to raise production leading to opportunities for the oil service industry.
Similarly, the US rearmament and reindustrialisation will greatly increase demand for metals from silver and gold through to copper, other base metals and rare earths. All these areas are likely to be in tight supply in coming years and also see consolidation and capital investment. Resources within the US sphere of influence are likely to attract a premium, hence the renewed focus of Latin America for US foreign policy.
We have entered into a very different landscape over the past few years, one where many of the old rules and expectations no longer apply. Those that are flexible to adapt and react quickly to changes should do well, those stuck in the old paradigms may continue to suffer.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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