The very first week of 2026 reminded us \u2014 without warning \u2014 that we are entering a period in which geopolitical risks will play an increasingly significant role. Below is a concise summary of the most important risks identified in the New Year analysis by Eurasia Group (EAG), complemented by our view on how these risks may affect investment portfolios.<\/p>\n\n\n\n
1. Political Revolution in the United States<\/h2>\n\n\n\n
The United States is undergoing a political revolution. According to EAG, President Donald Trump is systematically working to dismantle the constitutional system of checks and balances, fully seize control of the machinery of power, and use it as a weapon against his opponents. Last year he warned that the \u201cAge of Don\u201d had begun, and what started as tactical norm-breaking has evolved into a systematic transformation that goes far beyond partisan policymaking or acting outside traditional presidential authority. EAG argues that this shift is more profound than anything attempted even by the most ambitious presidents in US history (such as Franklin Delano Roosevelt). As many of the remaining guardrails that held during Trump\u2019s first term continue to erode, Eurasia Group warns that it is no longer possible to say with certainty what the US political system will look like after this revolution.<\/p>\n\n\n\n
Investment Implications:<\/strong> The technologies defining the 21st century economy run on electrons: electric vehicles, drones, robotics, advanced manufacturing, smart grids, battery storage, and \u2014 crucially \u2014 artificial intelligence. All these systems share a common foundation: the \u201celectric cell\u201d (batteries, motors, electronics, computing). Whoever controls the elements required to produce these cells can build whatever the modern economy demands. Whoever loses control will be forced to buy their future from someone else, EAG concludes.<\/p>\n\n\n\n Investment Implications<\/strong>: The administration of President Donald Trump has revived \u2014 and reinterpreted in its own way \u2014 the logic of the so\u2011called Monroe Doctrine by seeking to strengthen its power over the Western Hemisphere. While the original 19th\u2011century version of the doctrine warned external powers against interfering in the Americas, Trump\u2019s version has expanded this concept. It aims not only to limit the influence of China, Russia, and Iran in the Western Hemisphere, but also to actively assert the United States\u2019 leading role through a combination of military pressure, economic coercion, selective alliances, and the president\u2019s personal score\u2011settling. According to EAG, such an approach in 2026 increases the risk of overreach and unintended consequences.<\/p>\n\n\n\n Investment Implications:<\/strong> For a decade, the hollowing out of Europe\u2019s political center has been deepening. France, Germany, and the United Kingdom are entering the new year with weak and unpopular governments, encircled by populists on the right, populists on the left, and by the US administration and its allied social\u2011media ecosystem openly calling for their downfall. No parliamentary elections are scheduled in any of these countries this year. Yet all three face, at best, the risk of paralysis and, at worst, destabilization \u2014 and at least one of their leaders may fall, EAG warns. The consequences of such developments will not remain contained: Europe\u2019s ability to cope with economic frailty, fill the security vacuum left by the US retreat, and maintain Ukraine\u2019s combat readiness will suffer, EAG cautions.<\/p>\n\n\n\n Investment Implications:<\/strong> According to Eurasia Group, the most dangerous front line in Europe will shift this year from the trenches of Donbas to a hybrid conflict between Russia and NATO.<\/p>\n\n\n\n Investment Implications<\/strong>: Last year, Eurasia Group warned that President Trump would expand politically driven (crony) capitalism in the world\u2019s largest economy. What ultimately emerged was the most interventionist US administration since the Great Depression. In 2026, this interventionism will deepen further, reshaping the relationship between the public and private sectors. As Trump told The Wall Street Journal: \u201cI think we should take equity stakes in companies. Some might say that doesn\u2019t sound very American. I think it\u2019s very American.\u201d<\/p>\n\n\n\n Investment Implications<\/strong>: China\u2019s deflationary spiral will deepen in 2026, and Beijing will take no meaningful steps to stop it. Ahead of the 21st Party Congress in 2027, President Xi Jinping will prioritize political control and technological leadership over consumption driven stimulus or structural reforms that could break the deflationary cycle. China has the tools to prevent a crisis, but living standards will decline, negative effects will spill across borders, and the world\u2019s second largest economy will remain stuck in a trap of its own making.<\/p>\n\n\n\n Investment Implications<\/strong>: Under pressure to generate revenue and without regulatory constraints, many leading AI corporations will adopt business models in 2026 that threaten social and political stability \u2014 mirroring the destructive dynamics of social media, but faster and at far greater scale, EAG warns.<\/p>\n\n\n\n Investment Implications<\/strong>: North American trade will remain stuck in 2026. The USMCA agreement between the US, Mexico, and Canada will not be expanded, updated, or terminated. It will drift in a \u201czombie\u201d state, leaving companies and governments uncertain while President Trump continues negotiations with America\u2019s two largest trading partners.<\/p>\n\n\n\n Investment Implications<\/strong>: Water is becoming the planet\u2019s shared resource over which the fiercest disputes are being waged. In 2026, demand pressures will intensify, the vacuum of control will deepen, and water will turn into a charged weapon in several highly dangerous rivalries between competing states \u2014 as well as a tool through which non\u2011state actors will profit from state weakness. What was once seen as a humanitarian crisis will evolve into a national\u2011security threat, the EAG notes.<\/p>\n\n\n\n Investment Implications<\/strong>: The Eurasia Group analysis also highlights several factors that are often treated as serious but in reality merely distract attention. It does not fear a devastating impact from the US trade war, assumes relative stability in US \u2013 China relations, does not expect a fundamental reversal of globalization or a deepening of great\u2011power spheres of influence despite Trump\u2019s tariff policy, and considers concerns about a sell\u2011off of US assets and investments to be exaggerated.<\/p>\n\n\n\n
Concerns about weakening institutional checks and balances increase the risk premium required for holding US assets. Rising geopolitical risk typically leads to lower-than-optimal levels of corporate investment and reduced investment efficiency. Heightened geopolitical uncertainty creates friction that complicates optimal decision-making. This strengthens the case for diversification outside the US, particularly in Europe and Asia. Additional hedging tools include government bonds and precious metals \u2014 bonds as protection against weaker economic growth, and real assets as protection against rising inflation.<\/p>\n\n\n\n2. The Age of Electricity<\/h2>\n\n\n\n
China\u2019s dominance in installed electric capacity will influence both energy prices and the global race in artificial intelligence. Efforts to reduce dependence on China for rare earth elements will accelerate. These materials will remain attractive for investors, as will investments in defense and defense related technological innovation. Recognizing the importance of geopolitical risk will push companies to strengthen supply chain resilience, including building larger emergency inventories. Renewable energy sources can generally be considered more resilient than fossil fuel based ones.<\/p>\n\n\n\n3. The Donroe Doctrine<\/h2>\n\n\n\n
The analysis suggests that the risk of an excessive US response in South America may surpass the existing risks associated with non\u2011state influence networks. Such geopolitical tension could threaten global supply chains, which represents a significant financial risk for the world\u2019s largest corporations. Even when accounting for country\u2011specific risk, the region may adversely affect the indirect risk stemming from weakened portfolio investments in the United States. Risks linked to rising migration and political instability can be hedged, for example, through energy commodities.<\/p>\n\n\n\n4. Europe Encircled<\/h2>\n\n\n\n
If the worst fears regarding the collapse of centrist parties were to materialize, it would signal the threat of an adverse debt spiral as well as an erosion of support for Ukraine. Elevated geopolitical risks are further compounded by the fact that the European market is still adjusting to the consequences of hostile US tariffs. The rising risk of populism in Western Europe is already reflected in widening sovereign bond spreads. The prospect of a redrawn political landscape may force multinational corporations to reconsider not only their supply chains, but also the distribution of production facilities and plans for direct cross\u2011border investment.<\/p>\n\n\n\n5. Russia\u2019s Second Front Line<\/h2>\n\n\n\n
Russian \u201cgrey zone\u201d operations may lead to more direct, frequent, and dangerous confrontations between NATO countries and Russia. Paradoxically, geopolitical shocks often lead to higher equity prices in the medium term. Although energy markets reacted only mildly to geopolitical shocks in 2025, supply, demand, and prices will remain volatile. A Morgan Stanley survey shows that 77% of institutional investors in the EU and 81% in North America hold bullish expectations for defense sector equities.<\/p>\n\n\n\n6. State Capitalism with American Characteristics<\/h2>\n\n\n\n
Interventionism by the US president means that his administration is choosing winners and losers among companies on a scale unprecedented in modern American history. Geopolitical instability will undermine corporate investment. This policy will favor the stocks of companies that align themselves with the administration\u2019s priorities, but sufficient diversification remains essential. Active portfolio managers on both sides of the Atlantic will look for opportunities to generate returns in investments that provide solutions for securing raw\u2011material supplies, strengthening supply\u2011chain resilience, diversifying energy sources, and enhancing national security.<\/p>\n\n\n\n7. China\u2019s Deflationary Trap<\/h2>\n\n\n\n
If the risk of deflation were to deepen, it would pose a threat in the form of exporting an economic shock, meaning that any potential derailment of China\u2019s economy would be felt beyond its borders. Caution is needed regarding the possible adverse impact of shocks driven by geopolitical risk on bond investments focused on ESG criteria, including blue, green, climate, sustainable, and social bonds. If this risk materializes, it would be prudent to be prepared by increasing the weight of bonds and reducing the weight of Chinese equities, as Chinese yields to maturity could decline further. In the worst\u2011case scenario, it is also necessary to be insured against a potential drop in commodity prices.<\/p>\n\n\n\n8. Artificial Intelligence Consumes Its Users<\/h2>\n\n\n\n
The potential risk that AI companies might adopt business models that profit at the expense of users and become socially dysfunctional represents a threat to the possible bursting of the much\u2011feared investment bubble in AI infrastructure. In this case, it cannot necessarily be assumed that geopolitical shocks are only short\u2011term, and it is important to be prepared for planning across different scenarios. In the meantime, user cannibalization will occur as AI corporations expose hundreds of millions of people to psychological experiments in real time. Greater weight in investment decisions may be given to AI solutions designed for specific purposes with clear commercial applications, for example in the field of biotechnology. It is prudent to remain cautious about the risk of another technological bubble.<\/p>\n\n\n\n9. North American Trade<\/h2>\n\n\n\n
The stalling of mutual trade in North America creates a chronic sense of uncertainty. This will complicate cross\u2011border flows of both portfolio and direct investments. It is not good news for industrial investment on the continent. It is only slightly better news for corporations that have the means to shift capacity back to the United States. As elsewhere in the world, North American companies will reassess and redesign their supply\u2011chain routes so that they better reflect the distribution of geopolitical pressures rather than focusing solely on cost advantages.<\/p>\n\n\n\n10. Water as a Weapon<\/h2>\n\n\n\n
The fact that access to water in regions surrounding rivers such as the Nile or the Indus can become a weapon represents a complex investment risk that requires insurance for bonds from the affected emerging markets as well as for ESG\u2011category bonds. Conversely, it may benefit agricultural investments with reliably managed and resilient water resources.<\/p>\n\n\n\n
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