Weeks Where Decades Happen

The world order that has prevailed almost uninterruptedly since the United States entered the Entente’s side in World War I in 1917 is dying. What will come next is unclear.

February 24 of this year marks the symbolic endpoint. That was the day the U.S. actively chose to vote against the resolution condemning Russia’s invasion of Ukraine. With that, the U.S. ended up in the same club as Russia and North Korea—while even China, Cuba, and Iran abstained.

This is no small matter. It marks the end of a bipolar world order we have been accustomed to since at least the end of World War II. Free democratic market economies cooperating based on shared values, with mutual defense guarantees against countries with other agendas. Institutions like the UN, the World Bank, the IMF, and the WTO managing intergovernmental relations.

Finland’s President Alexander Stubb speaks of several decades of great uncertainty as countries now try to find a new approach. He believes we are moving toward what he calls a multilateral world order. There, different rules apply, different approaches are taken.

In the short term, this upheaval naturally presents major challenges. Europe can no longer rely on the guarantees issued within NATO’s framework; we simply can no longer trust the U.S. or its nuclear umbrella to protect our security. The question is how long NATO, in its current form, will survive—there are strong voices within the MAGA movement advocating for the U.S. to leave as soon as possible.

This, in turn, will mean significantly increased defense spending in Europe and entirely new forms of cooperation. It is easy to see the Nordic and Baltic countries banding together even more closely to protect each other. A debate about jointly developing tactical nuclear weapons in the Nordic/Baltic region has already begun, to replace those that the U.S. can no longer be considered to provide as a deterrent. France has already started discussions with Germany on how their nuclear capacity can be extended. “Weeks when decades happen” is a rather apt summary of the situation.

How, then, should an investor approach this uncertain world? First and foremost, one should not panic. War is not at our doorstep. Russia does not have the capacity for many years to pose a real threat to Europe’s core countries.

Second, it is worth considering that upheavals like the one we are experiencing now can also bring new solutions to old problems. The parts of the EU’s machinery that have not functioned must simply find new forms—Germany and France will take the lead in reshaping the EU’s core mission.

Europe has strong defense capabilities, but we lack a functioning, sufficiently deterrent nuclear umbrella—the one disappearing will be replaced by a new one. Germany will prioritize stable domestic energy supply, and the entire EU will have to do the same—we will see more new nuclear power.

Policy changes that weaken long-term growth potential will be reconsidered—I am thinking, among other things, about the EU’s Fit for 55 program. I believe we will see more reforms to strengthen the EU’s capacity for innovation and, therefore, less focus on legal overreach. In short, there will be less woke in political systems.

I am not saying these changes will be easy or happen quickly, but I believe enough people now grasp the seriousness of the situation.

A major challenge involves international trade. Unfortunately, the WTO likely also died on that February day. Trump’s tariffs will lead to more trade wars between former allies. This is harmful and counterproductive, but I fear it is something we must deal with.

Instead, we should act multilaterally and seek new trade routes with new partners and country blocs where mutual benefits can be found. We will see reduced global trade, or at least a slower growth rate, in the coming years.

Financial systems will likely also face trials. Decades of budget deficits and rising foreign debt have made most countries heavily dependent on each other. Any uncertainty about a country’s willingness to pay its obligations will create major challenges.

What does this mean for me as an investor? I believe all of this boils down to six quick conclusions:

1. Europe is not doomed. On the contrary, the EU is one of the world’s major blocs. We will deepen cooperation across the board, increase trade between our countries, and boost defense spending. Harmful policies will gradually be replaced by new and better ones. Structural reforms to enhance competitiveness will gain ground.

2. We will build new trade alliances with countries and regions we previously paid little attention to. This will benefit us, but also nations in Africa, the Middle East, and what we call the Global South. These alliances may not be based on shared values, but they will be based on common interests—and that is good enough. Right now, I would focus much more on companies and investments in these regions rather than American businesses.

3. The “Grandmother Principle” will become even more important—do not put all your eggs in one basket. Diversification will be more crucial than ever.

4. Avoid excessive currency exposure. I expect turbulence in currency markets ahead. The era of the U.S. dollar as the undisputed global currency is also over.

5. Focus on industries that are particularly important in turbulent times—raw materials, security and defense, energy, deep tech. But also waste management, waste-to-energy solutions, food and water security.

6. Invest in companies with strong geopolitical analytical capabilities. Does the board of the company you plan to invest in have expertise in this area? Can they read the changes and anticipate how they will affect their industry? In the coming two decades, such competence and understanding will be absolutely critical for strategic analysis and, therefore, for how safe your investment is.

   
   

Sven Otto Littorin

Partner, Stadsholmen Equity