WEM Market Pulse/January 2026 — The 10 Biggest Geopolitical Risks of 2026

January 15, 2026

The very first week of 2026 reminded us — without warning — 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.

1. Political Revolution in the United States

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 “Age of Don” 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’s 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.

Investment Implications:
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 — bonds as protection against weaker economic growth, and real assets as protection against rising inflation.

2. The Age of Electricity

The technologies defining the 21st century economy run on electrons: electric vehicles, drones, robotics, advanced manufacturing, smart grids, battery storage, and — crucially — artificial intelligence. All these systems share a common foundation: the “electric cell” (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.

Investment Implications:
China’s 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.

3. The Donroe Doctrine

The administration of President Donald Trump has revived — and reinterpreted in its own way — the logic of the so‑called Monroe Doctrine by seeking to strengthen its power over the Western Hemisphere. While the original 19th‑century version of the doctrine warned external powers against interfering in the Americas, Trump’s 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’ leading role through a combination of military pressure, economic coercion, selective alliances, and the president’s personal score‑settling. According to EAG, such an approach in 2026 increases the risk of overreach and unintended consequences.

Investment Implications:
The analysis suggests that the risk of an excessive US response in South America may surpass the existing risks associated with non‑state influence networks. Such geopolitical tension could threaten global supply chains, which represents a significant financial risk for the world’s largest corporations. Even when accounting for country‑specific 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.

4. Europe Encircled

For a decade, the hollowing out of Europe’s 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‑media 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 — and at least one of their leaders may fall, EAG warns. The consequences of such developments will not remain contained: Europe’s ability to cope with economic frailty, fill the security vacuum left by the US retreat,
and maintain Ukraine’s combat readiness will suffer, EAG cautions.

Investment Implications:
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‑border investment.

5. Russia’s Second Front Line

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.

Investment Implications:
Russian “grey zone” 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.

6. State Capitalism with American Characteristics

Last year, Eurasia Group warned that President Trump would expand politically driven (crony) capitalism in the world’s 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: “I think we should take equity stakes in companies. Some might say that doesn’t sound very American. I think it’s very American.”

Investment Implications:
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’s 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‑material supplies, strengthening supply‑chain resilience, diversifying energy sources, and enhancing national security.

7. China’s Deflationary Trap

China’s 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’s second largest economy will remain stuck in a trap of its own making.

Investment Implications:
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’s 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‑case scenario, it is also necessary to be insured against a potential drop in commodity prices.

8. Artificial Intelligence Consumes Its Users

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 — mirroring the destructive dynamics of social media, but faster and at far greater scale, EAG warns.

Investment Implications:
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‑feared investment bubble in AI infrastructure. In this case, it cannot necessarily be assumed that geopolitical shocks are only short‑term, 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.

9. North American Trade

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 “zombie” state, leaving companies and governments uncertain while President Trump continues negotiations with America’s two largest trading partners.

Investment Implications:
The stalling of mutual trade in North America creates a chronic sense of uncertainty. This will complicate cross‑border 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‑chain routes so that they better reflect the distribution of geopolitical pressures rather than focusing solely on cost advantages.

10. Water as a Weapon

Water is becoming the planet’s 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 — as well as a tool through which non‑state actors will profit from state weakness. What was once seen as a humanitarian crisis will evolve into a national‑security threat, the EAG notes.

Investment Implications:
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‑category bonds. Conversely, it may benefit agricultural investments with reliably managed and resilient water resources.

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 – China relations, does not expect a fundamental reversal of globalization or a deepening of great‑power spheres of influence despite Trump’s tariff policy, and considers concerns about a sell‑off of US assets and investments to be exaggerated.

Source: eurasiagroup.net and investment outlooks from GS, Morgan Stanley, JP Morgan, BlackRock, BCG, Fitch, Wellington, Franklin Templeton, PGIM, Amundi.