From Unipolar to Multipolar: The Investment Implications

While we cannot predict an end date to the current conflict in the Middle East, we believe the actions of the US and its “friends” in this war thus far mark the break between the end of a unipolar world and the beginning of a multipolar one.

Executive Summary

• The Macro Shift: The unipolar framework, the 70-year “security-for-loyalty bargain” between the US and the rest of the world, has been undergoing a structural de-rating marked by a long slow simmer of discontent.
• The Catalyst: We view Operation Epic Fury and the 2026 Hormuz Crisis as the rupture point, confirming that the oft-forecasted multipolar world is finally here.
• The “Dead Cat Bounce”: Do not mistake the dollar’s recent two-week spike for a return to US exceptionalism. We see this as mechanical reflex of the global dollar-debt imbalance rather than a fundamental return to US. exceptionalism.
• The Mechanism: We are witnessing the rise of geopolitical swing states echoing the non-aligned countries in the context of the Cold War that now possess strategic leverage which allows them to lower their cost of capital independent of US rates.
• The Signal: The fracture in the old order is visible in the structural ascent of gold reserves, the explosion of yuan-denominated “panda bonds” and the shifting rhetoric of global leaders.
• The Opportunity: With the US dollar trading 20% above fair value and US. stock market multiples stretched, the risk/reward is shifting toward these emerging beneficiaries of the new power structure.

Thesis: The rise of the “geopolitical swing states”

The events of the past decade have been a clarion call to capital markets; the multipolar world is finally here and the investment implications are profound. The single most important signal is that the “swing votes” of the global order now have improving leverage.

Nations like India, Brazil, Poland, Mexico, and Canada (and perhaps the Middle East) now possess strategic agency, which enables competitive bidding for their loyalty between global powerhouses. In the past, deals were “take it or leave it” and holding US. dollar reserves was a necessity. Today, in a world where the US needs partners for commerce and defense, these nations have strategic agency. For the first time in 70 years, the U.S. dollar is a choice as these countries can choose economic deals from two parties instead of just one.

The cost of capital convergence

This shift is showing up first in the cost of capital.  When a country like Brazil has options such as funding from China or the US, it no longer pays a necessity premium to borrow money. Competition for their loyalty drives their interest rates down, directly boosting the relative value of their local companies in the short run and improving fundamentals in the long run.

• India. Despite violating the Russian oil embargo, it received commitments for technology transfers and defense support from the US. Equity multiples in India are now on par with the US., which are the highest in the world.
• Brazil. There has been a marked improvement in multiples and borrow spreads. Brazil has seen borrowing costs fall by 200 basis points in six months, while rates in Europe and the US have barely budged.
• Venezuela. The recent rapprochement resulted in equity multiples doubling and borrowing costs falling by 1,000 basis points.

As the cost of capital falls for these resource-rich (both people and assets) nations, we expect this financial advantage to mutate into a physical one: a massive capital expenditure boom in infrastructure, power generation, and commodity extraction funded by new, friendlier lenders.

Evidence of the fracture: the long simmer

To understand why this leverage is durable, we must look at the structural decay of the system that previously held these assets down. Unipolarism was a hegemonic framework designed to enforce US standards…geopolitical, financial, legal and cultural. However, that architecture has fractured.

1. The gold signal

The ratio of Treasury reserves to gold reserves shows a clear ascent of the latter. While we do not believe the US dollar will cease to be a reserve currency, the word “reserve” should now be written in lowercase letters. This trend accelerated post-Ukraine when the US and NATO allies froze Russian assets, which served as a wake-up call for global central banks.

Sources: Treasury Department, IMF, TwinFocus

2. Debt markets (panda bonds) and the “rules of the road”

Brazil is launching panda bonds, which are yuan-denominated debt. Demand has exploded in the last two years, with even Mercedes-Benz borrowing over $10B USD in yuan. Panda bonds serve as the functional exit ramp from the US-written financial architecture first signaled a decade ago.

in the document delivered during a high-profile visit to the New Development Bank in Shanghai in April 2023, Brazilian President Lula da Silva sums up the view of many countries:

“Every night I ask myself why all countries have to base their trade on the dollar? Why can’t we do trade based on our own currencies? Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”

3. Diplomatic infrastructure: the decades-long simmer

While current headlines focus on the immediate actions of the Trump administration, the fracture in the global financial architecture has been simmering for over a decade. The rise of parallel systems is not a sudden response to a single leader but is rather a structural exit from a framework that no longer serves the “swing states.”

• The 2015 rupture under Obama. The first major visible crack in the Unipolar order appeared in 2015 with the founding of the Asian Infrastructure Investment Bank (AIIB). Despite the Obama administration lobbying allies to boycott the institution, the UK, Germany, and France joined anyway. This was the first time in the post-war era that the “special relationship” faltered regarding global financial architecture.
• Early signs of the fracture. President Obama explicitly voiced his concern that the US was losing its grip on the global “plumbing.” He framed the strategic necessity of US-led trade deals as a desperate effort to prevent China from becoming the global architect, further signaling that the fear of a multipolar world was a central US strategic anxiety long before the current era.
• A forced pivot. Recognizing that the US could no longer unilaterally dictate terms, Obama eventually shifted the rhetoric, telling the world that if the new bank upheld high lending standards, “then we’re all for it.” This was a quiet but profound admission that the “take it or leave it” era of US diplomacy was already ending.
• 2026 outcome. Today, over 100 countries use the AIIB to move money without touching the U.S. banking system. What was a latent strategic risk ten years ago has matured into a somewhat-valuable non-SWIFT (US controlled banking system) for the rest of the world.

Structural imbalance: a self-fulfilling cycle of volatility

To simplify the current landscape, we must focus on the balance of trade. The massive trade and fiscal imbalances the US currently runs have paradoxically created a structural surplus of dollar demand, which has artificially inflated the value of US assets.

Because our trading partners universally run dollar surpluses, that capital must be reinvested back into the US system, primarily in treasuries, public or private equities, and debt. During periods of global stress such as Operation Epic Fury, this creates a negative cycle where the world’s enormous quantity of dollar-denominated debt acts as a trap. As foreign currencies fall, entities are forced to scramble for dollars to service their debt, driving the dollar even higher.

While this may seem advantageous to the US in the short term, the cost is not lost on the rest of the world. These imbalances force an increase in the cost of capital for our partners at the worst possible moments. This is exactly why nations like Brazil are seeking to immunize their balance sheets from the hegemonic volatility tax imposed by US dollar imbalances.

Conclusion: the exit from unipolarism means that US no longer sets all the rules, but rather, just some of the rules

The current high-water mark for the US Dollar and equity multiples is unsustainable as we transition into a multipolar reality. The architecture that supported these peaks is being bypassed by the geopolitical swing states seeking stability outside of the US trade imbalance cycle. As we noted, the recent spike in the dollar is merely a dead cat bounce; it is a mechanical reflex of the dollar debt trap rather than a return to fundamental US leadership.

We believe the likely outcomes are as follows:

1. Lower dollar value over time: As the premium for the dollar fades, the currency will likely mean-revert towards fair value, which is currently 20% below spot.
2. Diminishing flows into US assets: The reflexive reinvestment of trade surpluses will slow as nations diversify capital into local and regional “safe harbors.”
3. Higher values for swing states: We expect a structural re-rating for geopolitical swing states such as India, Brazil, and the Middle East. As they decouple from US-driven volatility, their local companies will benefit from a lower, more stable cost of capital.
4. Significantly more non-dollar-based debt: The panda bond and local-currency debt markets will grow exponentially. This is the final realization of the 2015 “rules of the road” warning, as countries finally insulate their balance sheets from US fiscal policy.
5. Commodities as a neutral bridge: While there is no real alternative to the dollar today, investors will increasingly use commodities as a way to hedge the dollar’s fall. Valuation in the commodity complex will continue to move higher as they become the de-facto reserve assets of the multipolar era.

As Mark Carney noted at the World Economic Forum:

“This bargain no longer works. Let me be direct. We are in the midst of a rupture, not a transition. Nostalgia is not a strategy”.

We believe the slow evolution to a multipolar world is an important consideration in setting strategic capital market allocations.

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