Marko Papic, chief strategist at BCA Research and author of "Geopolitical Alpha," shares his insights on the implications of major global conflicts and their effects on investment strategies. He discusses the escalating tensions between Israel and Iran and the potential consequences for oil prices. Papic emphasizes the importance of incorporating geopolitical dynamics into investment decisions and calls for a shift from traditional economic indicators. He also explores the evolving U.S.-China relationship and its implications for energy security and global stability.
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insights INSIGHT
Geopolitics Drives Economic Trends
Geopolitics underpins economic growth and inflation forecasts and should be core to financial analysis.
Ignoring politics as exogenous risks leads to failed economic predictions, as shown during the pandemic.
volunteer_activism ADVICE
Integrate Geopolitics Internally
Do not outsource geopolitical analysis to ex-politicians; integrate it within your investment teams.
Learn to analyze politics yourself as it's critical to your fiduciary duty and portfolio management.
insights INSIGHT
Focus On Material Constraints
Policymakers' preferences are secondary to material constraints that define what they can achieve.
Focusing on constraints offers a data-driven framework for assessing political risks effectively.
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In 'Theory of International Politics', Kenneth Waltz develops a structural realist theory, known as neorealism, to explain international relations. Waltz argues that the international system is characterized by anarchy, where states are functionally undifferentiated and lack a central authority. This anarchy leads states to prioritize their security above other goals, resulting in security competition and the formation of balances of power. The book critiques reductionist approaches and emphasizes the importance of system-level processes in understanding state behavior. It has been highly influential in the field of international relations, causing a significant discursive transformation and is widely regarded as a classic text[1][4][5].
The Tragedy of Great Power Politics
John Mearsheimer
In this book, Mearsheimer presents a realist perspective on international relations, arguing that great powers are driven to accumulate power and ensure their survival in an anarchic world. He contends that even security-seeking great powers are compelled to compete and conflict with one another, leading to a tragic cycle of power struggles. The book examines historical examples, such as the rise of Imperial Germany, Nazi Germany, Imperial Japan, and the Soviet Union, to illustrate the inevitability of great power competition. Mearsheimer also discusses the potential rise of China and its implications for global politics, emphasizing that a rising China will seek to dominate Asia while the United States will strive to prevent this dominance[1][2][4].
The huge political and economic shifts taking place amid US President Donald Trump's global trade war, turmoil in the Middle East and the ongoing Russia-Ukraine conflict is putting geopolitical risk front and center of investment decisions. JPMorgan, for instance, has just launched a Center for Geopolitics, as companies become more reluctant to simply rely on business models and financial experience.
Marko Papic, chief strategist at BCA Research, an independent research group founded in 1949, joins John Lee and Katia Dmitrieva to give his take on the consequences of such significant global changes and how investors can best navigate these turbulent and uncertain times.
Asia Centric by Bloomberg Intelligence 
