Was everything really better in the past? The short answer is “no.” Many key aspects of our lives—such as education, prosperity, quality of life, life expectancy, and equality—have improved markedly over recent decades. At the same time, the world feels faster, more conflict-ridden, and more complex now. Investors are therefore likely to ask two key questions: Is the amount of geopolitical tensions really on the rise? And if so, can equity markets still continue to outperform traditionally more defensive bonds?
Empirically, there is a strong case that geopolitical and political uncertainty has increased. The Uppsala Conflict Data Program recorded a total of 61 active state-based conflicts in 2024—the highest level since 1946. The ACLED Project also points to a very high global level of organized violence. Additionally, the Stockholm International Peace Research Institute found that global military spending rose to USD 2.718 trillion in 2024—a record high and the steepest increase in decades. This shows that the amount of geopolitical tension has increased, and that states are responding visibly.
For markets, however, what matters the most is not the number of conflicts but their economic reach. In a more fragmented world, wars, sanctions, export controls, energy disruptions, and trade conflicts have a more direct impact on prices, supply chains, and corporate decision-making. The Global Risks Report by the World Economic Forum describes the present as an era of growing division, in which geopolitical and geoeconomic tensions are deepening. This transmission is also evident in the data, for example in the recent rise in the UBS Supply Chain Stress Index following the Iran war.
At the same time, geopolitical tensions are not the only market-relevant driver. Equities are currently benefiting from structural growth, particularly through substantial investment in artificial intelligence (AI). The Stanford AI Index shows sharply rising private AI investment and rapidly increasing AI adoption across businesses. Leading platforms have also made notable progress in monetization in recent months—a trend we believe can continue. Since markets are not only discounting present but also future productivity gains, high margins, and robust earnings growth, their constructive stance on equities remains rational despite heightened geopolitical tension, in our view.
In addition, uncertainty does not affect asset classes equally. While equities benefit from the positive outlook for technological innovation, many bond markets are struggling with inflation, higher term premia, and rising government debt. The “IMF Global Debt Monitor 2025” and the “OECD Global Debt Report 2025” show that high and rising public debt increases financing needs, expands the supply of government bonds, and keeps pressure on long-term yields elevated. So, geopolitical uncertainty alone does not automatically make bonds more attractive. If structural growth supports equities while fiscal risks weigh on bond yields, equities can outperform in relative terms even in a more unsettled world and deliver attractive absolute returns. In addition, traditional bonds increasingly face competition from alternative asset classes such as infrastructure investments and commodities, especially precious metals.
Our conclusion: The world has become more volatile in some respects, but in many ways we are significantly better off today than in previous generations. For equity markets, greater political uncertainty and geopolitical volatility are not necessarily a drag. As long as they continue to benefit from structural growth—driven, for example, by investment in AI, digitalization, and electrification—while bonds suffer from high government debt and inflation, rising issuance, and higher term premia, equity markets’ absolute and relative strength can remain intact.
