Security, sovereignty and markets: The new financial paradigm

Read the Amundi study here: Investing in a ‘Low Trust’ World

Geopolitics is no longer merely a factor causing temporary volatility: it now shapes the decision-making framework for governments and businesses. By influencing fiscal policies, industrial output, public spending and the trajectory of interest rates, it directly alters trade routes and the organisation of global supply chains.

This shift is altering market expectations regarding growth, inflation and liquidity. Capital flows into gold, certain strategic equities and various emerging markets reflect a search for alternative opportunities in a multipolar world. In times of geopolitical upheaval, the risk of inflation often outweighs the risk to growth, breaking with traditional mechanisms where bonds served as a systematic hedge. Consequently, taking sanctions and sovereign constraints into account has become a key element of risk management and capital allocation.

The ‘low-trust’ world: dynamics and investment patterns

Following several decades of relative stability during which the pursuit of economic efficiency took precedence, the ongoing erosion of international trust is now driving states to reduce their external dependencies and consolidate their sovereignty. Resilience is thus emerging as the new strategic priority in the face of vulnerabilities in supply chains and the risks of sudden disruptions.

This new world order is shaped by a series of profound geopolitical drivers. The proliferation of protracted conflicts is accompanied by a gradual paralysis of traditional diplomacy, whilst economic warfare is intensifying through sanctions, export controls and a fierce struggle for access to critical resources. At the same time, the arms race and the race for technological supremacy — driven in particular by artificial intelligence — are gathering pace. Furthermore, the sometimes unpredictable direction of US policy and the systemic rivalry between the United States and China are forcing many countries to forge more alliances in order to diversify their risks.

This geopolitical shift is giving rise to a profoundly reconfigured investment landscape. Despite public finances that are often in a poor state, governments are forced to massively increase their budgetary expenditure to fund defence, security and strategic autonomy. This context is fuelling persistent volatility and raising sovereign risk in the fixed-income markets. Faced with heightened uncertainty and regular supply shocks, investors are now demanding higher risk premiums across all asset classes. Finally, this new environment is resulting in a marked divergence in returns between regions and sectors, leading to a significant re-rating in favour of companies and key infrastructure that contribute to sovereignty.

Key trends in geopolitical transformation

Coercive measures and control of resources

Governments are expanding their use of economic levers through naval blockades, export restrictions and anti-coercion mechanisms. Critical minerals (lithium, nickel, rare earths) and hydrocarbons are at the heart of this competition, prompting several countries (Mexico, Chile, Bolivia, Indonesia) to tighten control over their deposits.

Budget reallocation towards security

Defence priorities extend beyond conventional weaponry to include cyber defence, the protection of subsea and energy infrastructure, satellites and autonomous systems. The growing need for public funding is placing sustained pressure on sovereign bond markets.

Technological rivalry and the challenge of AI

The lack of harmonised international regulation is intensifying competition around artificial intelligence models. The desire to avoid any dependence is driving the United States and China to secure their supplies of cutting-edge components, making data sovereignty and control over chips a strictly geopolitical issue.

The reshaping of alliances and Europe’s role

Tensions on major shipping routes are accelerating the search for alternative suppliers and the emergence of a more fragmented financial system in which the dollar coexists with other reserve currencies. Against this backdrop, Europe (the EU, the UK and Ukraine) is stepping up its military efforts, led by Germany, Poland and the Nordic countries, drawing on the strength of its institutions to maintain the attractiveness of its assets.

Impacts by asset class

• Equities: sovereignty and operational resilience are becoming key selection criteria. Key sectors include energy independence (solar, nuclear, grids), sovereign technology (semiconductors, local servers, space), defence and healthcare.

• Currencies: the foreign exchange market acts as an immediate buffer against geopolitical risks. We are seeing a gradual diversification of foreign exchange reserves towards baskets of alternative currencies and digital assets.

• Bonds: high issuance requirements are fuelling a rise in long-term term premiums. Interest rate sensitivity provides less effective protection against geopolitical shocks, leading to a more pronounced valuation gap between issuing countries.

• Credit: a divergence is emerging between well-protected strategic players and globalised companies with low margins, which are more vulnerable to the repercussions of tariffs or regulatory changes.

• Gold: the asset retains its role as a strategic allocation tool, useful for stabilising a portfolio in the face of political uncertainties and the erosion of the hedging power of traditional assets.

• Raw materials: structural demand driven by the energy transition, digitalisation and defence (copper, cobalt, graphite, lithium) is coming up against supply constraints, underpinning prices and reinforcing their role in diversification.

Conclusion: Resilience as a new requirement

The transition to a ‘low-trust’ world demands a sustainable shift in approach. To navigate this environment, where security takes precedence over cost optimisation, the analysis of geopolitical risks must be integrated across the board into portfolio management, from strategic allocation right through to security selection.