Peace in Ukraine will be an important conversation this fall. A ceasefire, or even a settlement, would be welcome news. But investors shouldn’t mistake de-escalation with a return to the old geopolitical playbook. The global system is already operating under new rules: rules shaped less by globalization and more by competition, industrial policy and national security economics. New York Life Investments offers further insight into this transformation here.
How we got here
Russia’s invasion of Ukraine triggered a major shift in global trade and geopolitical risk pricing. As the global economy grappled with the post-pandemic impact of inflation and supply-chain insecurity, energy disruptions stemming from the conflict drove prices even higher.
Europe’s overnight cutoff from Russian gas was the largest forced energy reorientation in modern history, one that sent costs soaring and tested supply chains across the continent. Financial markets quickly priced that stress, with government borrowing costs climbing as the economic burden mounted. At the same time, the West mounted the most sweeping sanctions campaign ever against a major economy, while NATO both expanded and committed to years of higher defense spending. That was underscored earlier this September, when Poland invoked NATO Article 4 after Russian drones violated its airspace. The lesson was stark: energy, security and economics are inseparable, and overreliance on any single link in that chain can carry heavy costs.
Why peace in Europe won’t rewind markets
If fighting cools, markets will trim the worst-case risks. The immediate winners would likely be the industries hit hardest by war-time uncertainty, particularly those reliant on energy. At the same time, Europe’s re-plumbed energy system would face fewer price spikes, giving both consumers and companies more breathing room.
But relief isn’t a reset. The geopolitical playbook has been re-written: energy access has become both an economic and strategic asset for a nation; trade dependencies now have a greater potential of being exploited; sanctions and weaponization of the U.S.-backed financial system turned into routine tools of statecraft; companies now pay for supply chain redundancy and “friend-shoring,” putting resilience ahead of just-in-time efficiency; and defense budgets have climbed, raising the geopolitical risk premium. These changes are now embedded in policy, supply chains and capital plans, and they won’t disappear with a ceasefire.
Seen through that lens, recent U.S. messaging is confirmation of this change. In February in Munich, U.S. Vice President J.D. Vance put burden-sharing at the center of the transatlantic debate, pressing Europe to carry more of its own defense. And in May in Riyadh, President Trump presented security, energy and investment as a single package, linking U.S. support to concrete investment pledges and defense agreements. Read together, these speeches signal a new regime, one in which global cooperation remains, but on tighter, terms-based footing. This regime is not unique to the Trump administration but is a global development and calls for a new investment playbook.
Investment themes for a shifting world order
For markets, a more transactional global economy means potentially higher prices and wider performance dispersion across countries and sectors. The common thread is policy: long a market influence, but now the central engine directing capital toward strategic infrastructure and critical technologies. Against that backdrop, New York Life Investments believes that investors should prioritize three themes expected to drive portfolio returns in this new era:
1. Long resilience, short global interdependence: powered by a security-driven fiscal impulse
Countries are rebuilding domestic manufacturing capacity and retooling supply chains for resilience. National security is becoming a justification for large-scale public investment; in June, NATO countries increased their defense-spending target to 5% of GDP by 2035, up from 2%. These commitments expand beyond traditional defense and into cyber and infrastructure security. And they won’t be met by defense budgets alone. Private capital will flow through investable megatrends such as digital infrastructure, semiconductor production, AI development and critical resource access. Investors can “follow the money” and invest across sectors benefiting from government support.
2. Expect inflation to stick around
Inflation may run higher in this new regime as the efficiency gains of globalization unwind. We think a modestly larger sleeve in real assets and broad commodities makes sense this cycle: they’re tied to the infrastructure build-out and can help as inflation protection.
3. Diversification offering enhanced benefits
For most investors, it’s worth reassessing and diversifying geographic exposures. As some traditional alliance structures shift, cross-market correlations have fallen, increasing the benefits of country diversification. This plays out in traditional economic factors, too, as different geopolitical approaches lead to differences in inflation and rates backdrops: a key driver of allocation opportunity. Tied to both factors, currency volatility is also likely to rise as national trajectories diverge, so it may be a good time for investors to take a fresh look at how they’re managing currency risk.
The policy regime forged during the war (security-first supply chains, explicit industrial priorities and conditional alliances) is supported by broader trends than war alone. That means that peace won’t rewind the clock.
At New York Life Investments, we offer investors a new playbook, one designed for an era where growth is driven less by globalization and more by industrial policy and national security.
source: cnbc.com
