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How to invest when the global crises never stop
James Mackintosh, The Wall Street Journal4 min read12 Jul 2026, 11:23 AM IST
Summary
In a world of wars, trade wars and crop failures, bond yields need to be higher than they were because they offer so much less protection than they used to.
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More war. More political conflict. More weather disasters. The future looks grim, and for investors there’s worse: The standard ways to protect against such shocks might not work. –
The basic problem is the return of superpower conflict and the withdrawal of the U.S. as the world’s policeman, exacerbated by more frequent extreme weather events due to global warming. Combine that with toxic dog-eat-dog politics threatening trade, and investors and policymakers are bracing for bigger and more frequent shocks to the economy
The on-off U.S.-Israeli war on Iran offers a template. Every time it flares up, as it did on Wednesday, stocks fall, bonds fall and even gold falls
The difficulty for investors is what to do
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Raphael Arndt, chief executive officer of Australia’s Future Fund, the country’s sovereign-wealth fund, came to a surprising conclusion: Buy more stocks
After Covid, he and his team realized geopolitics is back, big government is back, politics has become more populist and the old approach to investment no longer works
“I said we have to tear everything down to first principles and rebuild it,” he said. The result of a deep review of how the fund invests: “A pretty clear portfolio strategy that said, ironically enough, we need more equities, not less. Because we need higher returns to make up for the risks.”
In the old investment paradigm, government bonds acted as shock absorbers, with prices rising and yields falling when the economy takes a hit
But in a world where the shocks cause inflation, bond prices fall and yields rise when bad stuff happens. That is particularly true when government debt levels are so high
“We need to work hard to diversify, and bonds won’t necessarily diversify,” Arndt says. He bought gold in the hope of it offering protection as bonds used to, although since the Iran war it hasn’t worked. He also uses hedge funds designed to make money in both up and down markets
The Future Fund is unusual among large funds in having the freedom to ignore benchmarks. But plenty of investors agree that bond yields need to be a lot higher than they were to compensate both for the newfound volatility of inflation, and because they aren’t offering the same downside protection as they used to
“The biggest risk is inflation moving far out of control, like the 1970s-80s,” says Raman Srivastava, CEO of Insight, part of Bank of New York Mellon. He likes infrastructure bonds with yields that rise with inflation, holds fewer long-dated bonds to avoid the volatility inflation brings and suggests a more active approach
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The obvious pushback is that investors should know all this, and that’s why bond yields are stubbornly high. U.S.-China rivalry isn’t news to anyone, and you would have to be living in a cave to be unaware of Russian aggression in Europe, ever-louder Chinese claims on Taiwan or, under President Trump, U.S. territorial ambitions in the Americas
Yet, says Mike Bell, head of market strategy at RBC BlueBay Asset Management, “markets don’t really price geopolitical things until they actually happen, even if the risks are very clear.”
The massing of Russian troops on the Ukrainian border before the 2022 invasion was well known, and both Britain’s MI6 and the CIA warned of Russian President Vladimir Putin’s plans in advance. To be fair to investors, the oil price had already risen significantly and stocks had fallen in the six weeks before tanks rolled over the border, but oil then leapt 30% in just over a week, while the S&P 500 fell into a bear market as war boosted already soaring inflation
Bell says investors were similarly sanguine about U.S. ships massing near Iran before they attacked. His advice is to pay attention to troop buildups—and to be ready to buy and sell quickly
“If you just need to buy and hold something for the next decade I think you just have to accept that it’s going to be a bumpier ride than in the past,” he says
At the moment I like government bonds as protection against a major fall in stocks if traders turn sour on artificial intelligence. A big drop would be a much more traditional type of shock, slowing the economy, slowing inflation and making the solid yield of Treasurys look attractive
But in a world of wars, trade wars and crop failures, bond yields need to be higher than they were because they offer so much less protection than they used to
Write to James Mackintosh at james.mackintosh@wsj.com
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