Echo from Davos: The War of the Future Will Be a War of Capital

Yanko Hristov, Head of Business Development and Sales at Alaric Securities, “Business Start”

The USA’s global leadership position is being challenged by China, and Washington is responding with a radical shift in its foreign and defense policy, which has manifested in recent weeks and at the Davos forum. Thus, geopolitics is becoming a leading factor for all asset classes – from stocks and bonds to commodities, comments Yanko Hristov, Head of Business Development and Sales at Alaric Securities, in the “Business Start” program hosted by Hristo Nikolov.

“A very interesting forum in Davos this year… it is certainly the most interesting in the last 15-20 years. Geopolitics has become a major factor in international markets.”

One of the strongest theses of the forum came from Mark Carney, who announced the end of the rules-based international order. This process is not new, but began with the COVID-19 pandemic, which revealed the dangerous dependencies of states on global supply chains, believes Hristov.

“This globalism in which we have lived for the last few decades is perhaps heading toward change,” commented Hristov, adding that the world is entering an era of “great power politics,” where small states will have to seek new alliances to survive.

The War of Capital: “Sell America 2.0”

One of the hottest topics at the moment is the so-called “weaponization of assets.” A Deutsche Bank analyst has already warned of the possibility that European investors may begin selling off American assets – a process called “Sell America 2.0.” The reason for this is Donald Trump’s threats toward Greenland and the change in US foreign policy.

Hristov emphasized that although this will not happen abruptly, the trend is clear, unless relations between the EU and the USA improve. Such action would be reciprocal – the EU may hold a huge amount of American debt, but the USA also has large investments in Europe, warned Hristov.

“If something doesn’t change in the relationship, this will be the natural path for European investors – they will reduce the share of American assets in their portfolios.”

The Danish pension fund AkademikerPension announced this week that it plans to exit US government securities by the end of the month, and this alarmed US Treasury Secretary Scott Bessent to such an extent that he downplayed what happened on several occasions, Hristov recalled.

According to Ray Dalio, founder of hedge fund company Bridgewater Associates, there is an ongoing general diversification away from American assets, especially by global central banks. With the intensification of geopolitical tensions, this will have effects on capital markets and could even escalate into a capital war, Dalio shared with Bloomberg in Davos.

“The capital war is the war of the future. There are very serious mechanisms there that at first glance will not have an effect on the ordinary person, but in practice will have a huge effect on them,” commented Hristov.

An example of this is US government debt, said Hristov. If investors start demanding higher interest rates to buy US bonds, this will become a “time bomb” for the American economy.

Trump, AI and the Hunger for Energy

Donald Trump’s return to the world stage brings with it a radical change in energy priorities. In Davos, his messages were clear: focus on fossil fuels and nuclear energy at the expense of the “green transition.” The reason is artificial intelligence (AI), which will lead to a doubling of electricity needs for data centers, commented Hristov.

“Oil and gas, traditional energy, nuclear energy – this is a sector that will grow.”

In this context, gold remains the ultimate safe-haven asset. Geopolitical uncertainty and the behavior of central banks and institutional investors portend continued growth for the precious metal.

Defense and Risk Premium

Europe is forced to rethink its dependence on the USA regarding defense. An example of this is the massive IPO of Czechoslovak Group in Amsterdam – a clear signal that the security sector will attract more and more capital.

Defense sector stocks have risen significantly over the past year – this trend will continue, albeit at a slower pace.

“Perhaps the growth will not be as large, but there is still potential for growth in the defense sector. Not large, but it exists.”

For smaller and emerging markets, however, the new order brings higher costs. Investors are already seeking a higher “risk premium” to invest their funds there.

“Investors will seek more premium in these markets based on the fact that the risk in them under the current geopolitical situation is higher. This applies to currencies, and to the stocks themselves, bonds and all kinds of assets.”

The material is not a recommendation for making an investment decision.

This material is a translation of the article originally published on BloombergTV Bulgaria.