Shaking the foundations: Navigating an era of uncertainty

A month into Mr. Trump’s second presidency, investors are facing an overwhelming flow of information — ranging from executive orders and daily statements on national and international policies to Senate hearings for Cabinet nominees. Distilling meaningful insights from this constant barrage is a daunting task, made even more challenging by the unconventional nature of many new policies and appointees.

Reflecting on the past month’s events, we believe the administration’s approach could challenge two core pillars of global capitalism — international commerce and the global order — potentially reshaping financial markets and geopolitics in the near future.

Breakdown of contract rights

Under President Trump, international agreements — essentially contracts — now seem perpetually at risk of being ignored or broken. During his first presidency, for instance, he withdrew the U.S. from NAFTA and the JCPOA. Even the United States–Mexico–Canada Agreement (USMCA) — ironically his own renegotiated successor to NAFTA — has been undermined by new tariffs targeting Canada and Mexico.

More recently, the administration’s posture toward ending support for Ukraine raises the possibility of breaking up the Pax Americana that has underpinned U.S.–European relations since World War II.

Domestic trends also echo this shift. In recent days, federal employees have faced what amounts to challenges to their employment contracts — actions likely to be contested in the courts.

Challenging sovereignty rights

Domestically, U.S. private property rights enjoy robust legal protection. However, no comparable enforcement mechanism exists when it comes to international sovereignty — commonly understood as a nation’s “property” on the global stage — beyond the goodwill and mutual respect of countries.

President Trump has chosen to frame geopolitics through the lens of real estate transactions and property deals, as illustrated by his remarks concerning Greenland, Gaza, and Canada, and most recently by negotiations involving Ukraine — where land might be protected and preserved in exchange for mining rights.

By normalising challenges to the sovereignty and sanctity of other nations’ territories and resources, the administration risks undermining the post–World War Two international order. The stability that has defined global relations for decades may be profoundly shaken if this approach continues.

Risks from uncertainty in global markets

By casting doubt on the value of contracts and sowing uncertainty around property rights, the administration undermines not only two major tenants of capitalism but also the fundamental notion of trust. If national and international investors cannot rely on the system’s foundations, confidence breaks down and uncertainty grows — reducing investments, slowing growth, and hampering innovation.

For example, if trade conflicts escalate, we could see restrictions on cross-border capital flows or the imposition of new taxes on foreign investors — scenarios that, until recently, might have seemed far-fetched. However, investors should consider them as more than just tail risks, given that capital controls existed in parts of Europe only three decades ago.

Meanwhile, the relative outperformance of European stocks over their U.S. counterparts — by nearly 10% since President Trump’s election in November — could well reflect a shift in capital flows in response to these growing uncertainties.

How to navigate the storm

A few simple risk management measures may help investors to navigate this climate of uncertainty:

• Review geographical asset allocations and favour jurisdictions with a strong commitment to contract law and robust legal protections for both domestic and international investors.
• Prepare for increased market volatility — potentially both to the upside and downside — and adjust risk exposures accordingly.
• Consider “less visible” investments that are unlikely to attract headline-grabbing scrutiny from the current U.S. administration. In turbulent times, “boring” can indeed be beneficial.