Unprecedented times are reshaping the landscape for traders and investors as we witness the intersection of unparalleled technological development and escalating geopolitical threats. A new whitepaper from CMC Markets explores the key factors threatening the status quo and offers insights on navigating this new world order. In this episode of Forbes in Focus, CMC’s head of institutional sales Michael Bogoevski shares insights on trading the new geopolitical paradigm and finding opportunities in a fractured world.
Below is an edited excerpt from the conversation. Watch the video for the full interview.
Michael Bogoevski welcome to Forbes in Focus. We’re living in very interesting political times at the moment. Let’s talk about what’s different about this political environment. In what way are we entering, or have we entered a new paradigm?
The US and China have always been at war of some type, but this one is overly aggressive. Stylistically, we’ve never seen this style of geopolitical tension before. We’re seeing the American government, which has been the policeman of, basically, the Western world for many, many decades since World War II, suddenly being overtly aggressive to allies. And we’re just not used to this. And right now, at the cost of allies, and at the cost of relationships, you’re seeing prices in these markets go down, which is to the benefit both to China and to America.
Turning to semiconductor technology and AI in particular, why is this specific area so critical for traders to monitor?
Right now, my viewpoint is that chips and access to the best technology is almost the new oil crisis. The battle to have oversight, power, and dominance in that sector is exactly what we’ve seen over the last 50 years when it comes to energy. So there is an absolute fight going on. It’s not going to be a kinetic fight. It’s going to be about access to the best chips, making sure those companies are in your domestic market borders.
And we saw an example of this just recently, during COVID, when pharmaceutical supplies were interrupted, and there was a sudden realisation by the US government that when borders were stopped suddenly, those supply chains were broken. I believe what we’re seeing now is actually an adjunct to what we saw during the COVID crisis. And this is about supply and it’s about dominance of supply and making sure during crises that you’ve got access to these key assets.
Geopolitical headlines, whether it be wars, global crises, or elections, often dominate headlines. How do these things generally influence financial markets, and why might a trader have a different approach to them than a casual observer?
If we look back at 2024, it was one of the highest number of elections we’ve ever seen in history. What we’ve seen is that every party that was in government has basically been upturned, including the US government. What does this mean? We’ve seen destabilisation throughout the Western economies as new governments are coming in and employing a new fiscal policy and potentially a different influence in a new political platform.
So whilst in the past we’ve seen quite stable governments and hence a stable fiscal policy and a stable monetary policy, now we’re seeing a completely different turn of events. We’re actually seeing where the Fed Reserve may have to come into action and reduce rates to buffer the situation in the US economy.
So right now, I think you absolutely have to be at the forefront of what’s going on with governments: who’s in power, what’s their political platform, how do they plan to express that political platform? These are all having high impacts on capital investments and day-to-day trading.
There’s a view that markets often price in geopolitical events well before they are widely reported. Why is it important for traders to understand this?
The problem with the current geopolitical situation is there’s no end to it because when we’re talking about trade, there is no end to the fact that it has almost an infinite impact on forward earnings. And that’s why markets right now are finding it very, very difficult to price.
We don’t know what the true ramifications are right now. We’re seeing a direct impact on macroeconomic forces, a direct impact on interest rates, potentially future inflation, and we’re seeing a multipolar world where it’s completely fractured, and we’re seeing trade completely upended.
We’ve spent the last 40 years where globalization was a positive, where it was seeing capital being funnelled to the most efficient countries. We saw imports and exports unhindered by tariffs. Right now, that order is completely upended.
So we don’t know the consequences of what we’re dealing with, and it’s going to take many, many quarters or years to really see the true impacts. We’re going to start seeing them, I think, within the next three to six months. But really these unintended consequences, we just don’t know yet.
Recently you’ve seen the US shifting away from funding global conflicts such as those involving Ukraine and NATO. How is this reshaping financial markets and where should traders be focusing their attention now?
It’s all about capacity, right? There’s only so many initiatives and topics you can actually focus on in any one time. And I believe at the moment, the US is absolutely focused on tariffs and what’s really going on in Southeast Asia. So it unwinds the situation in both the Middle East and the Ukraine to give it capacity and focus on what its biggest agenda is, its domestic economy, and what’s going on in Southeast Asia with the China threat and its economic rise.
So what can traders do? You can see two forms of flows going on. We saw German markets, for example, perform extremely well. From January and February of this year, we started to see lots of flows back into Germany on the back of a new military budget, a new government, and a promise to start lifting military budgeting across not only Germany but all of Europe.
Secondly, if you believe in the US initiatives, you’re starting to see the domestic economy and particularly small caps to mid-caps within the US index markets should start benefiting where we’re starting to see focus back. Right now, the Russell Index, for example, has performed extremely poorly over the last couple of years. And so you could see this as deep value when you’re starting to see flows and focus back within the US.
For more insights from Michael Bogoevski and other leading industry experts from CMC, download the whitepaper Trading at Boiling Point: Thriving in a Chaotic Future here, and don’t forget to watch the full video.