Investing for stability in an unstable world

This year, consensus market views have been continually wrong-footed. At the turn of 2025, investors were expecting pro-growth policies and deregulation from President Donald Trump to reward the US dollar, and drive up the share prices of banks and traditional energy firms. Instead, April’s tariff announcement caused a shock – if temporary – fall in US equities and rise in Treasury yields. The S&P 500’s subsequent performance has been dominated by tech firms, and the dollar has fallen around 10% year-to-date against a basket of major currencies.

Perhaps investors would have radically reduced their equity exposure – a costly strategy in hindsight – had they foreseen the highest tariffs since the 1930s, a threat to Federal Reserve independence, the US bombing Iran, and a war continuing to rage on Europe’s borders.

Sources of instability will continue into 2026 and beyond. Some may spark fresh volatility in markets: a change of Federal Reserve Chair in May 2026, the US mid-term elections in November, as well as elections in economies as diverse as Brazil and Israel. European security will likely remain high on the agenda and US-China tensions continue.

Meanwhile, tariffs’ effects have yet to be fully felt, but have already unleashed profound changes to global trade. The importance of multinational institutions is in retreat and the world is splitting into rival geopolitical blocs, as China promotes an alternative world order, defined by opposition to Western hegemony.

Markets tend to shrug off geopolitical events

Of course, we should not overestimate the importance of geopolitics for investors. Stocks often take such shocks in their stride. Major geopolitical risk events have led to an average drawdown of just 3% in equity indices in advanced economies since 1985, according to International Monetary Fund estimates¹. Today even oil prices – traditionally responsive to geopolitical risks – are shrugging off conflict in the Middle East amid surplus supply.

That should not obscure the scale of economic and political change underway. Changing cycles can often kick-off multi-year trends that investors can use to their advantage. We do so by finding order in movement, anchoring portfolios in a stable, strategic asset allocation, and supplementing this with tactical investment decisions, taking risk where we see most reward. 

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Rethinking stability: investing in a multipolar world

October 24, 2025

As global alliances fragment and strategic competition intensifies, we believe investors must remain discerning, and search out sources of diversification and potential returns. Not just in equities and bonds, but also – where it suits an individual investor’s risk profile – hedge funds, gold, and unlisted asset classes such as private equity, private credit and infrastructure.

An investment strategy that reacts to geopolitics would be ill advised; it is much more prudent to build portfolios that are resilient to shocks.

With this in mind, our portfolios also include thematic equity allocations that seek to benefit from long-term transformations underway in the global economy, including strategic investments to achieve greater autonomy in energy, healthcare, and defence. These trends also include increasing longevity; growing climate and nature-positive investments and the infrastructure to support them; the rise of the young Asian consumer; and of new technologies, from AI and robotics to quantum computing.

The rise of alternative centres of power

Fundamentally, we also expect the rise of alternative centres of power in the global economy. This is being exacerbated by unpredictable US policy-making, threats to Fed independence, and the return of fiscal largesse – a pattern being repeated across many developed economies, and putting pressure on long-dated yields from Japanese government bonds and US Treasuries to German Bunds and UK gilts. 

One beneficiary of an increasingly multipolar world is emerging markets. In aggregate, these economies boast stronger fundamentals than in past cycles, and there is scope for even more inflows from foreign investors, who remain on the whole underinvested in emerging markets. Many of these economies are enjoying low inflation, while a weaker US dollar gives some central banks the room to cut rates. Current yields on emerging market bonds look attractive, and equity valuations much lower than in developed markets.

Tariffs and unpredictable US policies have prompted speculation around possible de-dollarisation and the end of US exceptionalism. However, we see a more complex picture ahead, reflecting a fundamental imbalance at the heart of the global economy. While many economies - from Asia to Europe, Latin America and Africa – are major producers, US consumers remain the dominant source of global demand, and pay in US dollars. The US economy is therefore still structurally exceptional, and the Trump administration’s tariffs leverage this.

In our view, a global retreat from US equities and the dollar may be more gradual than many expect. And despite a slowing US economy, we still believe there is room for stocks to gain further ground, supported by continuing earnings growth, AI tailwinds, and falling US interest rates.

Rethinking stability

While a strong underlying asset allocation can provide initial impetus for a portfolio, an investment strategy is only stable when it is dynamic, weathering volatility and other destabilising forces. At Lombard Odier we’ve spent over two centuries rethinking the sources of risk and return, readjusting and realigning client portfolios. In an uncertain world, we seek to remain a source of stability for investors.