Is the world becoming a more dangerous place?

Headlines are dominated by news from war zones, nationalist rhetoric is on the rise, and defence budgets are increasing across the globe. The belligerent tone adopted by prime ministers and presidents only adds fuel to the fire. In 2025, there were 59 active state-based conflicts – the highest number since the Second World War.

This rise in international conflict is, of course, far from good news, as are the tragic stories emerging from the many theatres of war. Commenting on these issues is always delicate, especially when doing so from the comfort of one’s desk. Yet, as investment managers, our job is also to focus on fundamentals and assess whether this growing sense of insecurity – both real and perceived – could escalate to a point where it threatens the stability of the global economic system. In this regard, despite increasingly harsh rhetoric, we believe that some timid but encouraging signals have emerged in recent months.

The importance of dialogue and economic diplomacy

Although geopolitical rivalry is often described as a prelude to a future clash between blocs, the hottest axis remains the one between the United States and China. However, 2025 has shown that, when significant economic interests are at stake, multilateralism remains a viable path.

For example, despite flare-ups over tariffs and reciprocal retaliation, the United States and China have maintained high-level economic and trade talks throughout the year, culminating in the October 2025 meeting between Donald Trump e Xi Jinping, with another meeting expected in April. Both leaders, while maintaining deep strategic divergences, adopted a more pragmatic tone. Trump emphasised the need to rebalance bilateral economic relations, criticising practices seen as unfair, such as forced technology transfers and subsidies to Chinese state-owned enterprises. Xi, for his part, stressed the importance of “win-win” cooperation and stability as essential conditions for shared prosperity.

Despite underlying tensions, the two leaders attempted to restore a degree of predictability to their relationship. No concrete progress was made on sensitive issues such as Taiwan or cybersecurity, but both reiterated the need to avoid strategic accidents and to keep channels of communication open. This balance contributed to a less confrontational narrative and created political space for economic diplomacy.

In this context, the ongoing dialogue suggests that both superpowers still view stability as a mutual benefit. Keeping communication channels open and managing disputes through negotiation helps defuse minor tensions before they escalate – a pragmatic approach that, for now, appears to prevail.

The war in Ukraine: early signs of a potential truce?

Even on what is arguably the most sensitive front in today’s great-power competition, some progress appears to have been made in recent months, at least in laying the groundwork for dialogue. Currently, Ukraine remains the most intense and symbolically significant armed conflict in the international system. The fighting continues to be extremely violent, especially along the eastern front, with heavy clashes in the Donetsk and Kharkiv regions and constant missile and drone attacks on civilian and military infrastructure. According to independent observers and military analysts, including the Institute for the Study of War and CSIS, the conflict has increasingly taken on the characteristics of a war of attrition, marked by slow, costly, and territorially limited advances.

Yet despite its intensity, the conflict remains geographically contained. There has been no direct spillover beyond Ukrainian territory, nor direct military engagement between Russia and NATO. This is a crucial point: rather than a global war, this is a high-intensity regional conflict “contained” by the strategic calculations of the major powers, with both sides seemingly intent on avoiding irreversible escalation.

On the diplomatic front, dialogue remains fragile but not absent. In recent weeks, indirect contacts and exploratory initiatives have intensified at all levels, with the aim of assessing the possibility of conditional ceasefires or temporary agreements. Discussions are increasingly focused on future territorial arrangements, lines of demarcation, and security guarantees, rather than on a comprehensive political reconciliation. Although it is certainly too early for any firm predictions, this pragmatic approach, supported by Washington, could begin to yield results, especially as both sides are worn down by the protracted conflict. Despite the harsh rhetoric – predictable in such a delicate negotiating phase, where each party seeks to protect its position – it is plausible that, in the coming months, compromises may emerge that bring the parties closer to a negotiated solution and, if not a lasting peace, at least a cooling of hostilities. However, the possibility of an escalation remains very real and cannot be ruled out.

Conflict and equity performance

The dynamics seen in the Ukrainian conflict extend to many other flashpoints around the world today. The international landscape remains shaped by multiple crises, yet without their convergence into a single systemic conflict. Even in the Middle East and other tension-ridden regions, the major powers continue to favour containment strategies and diplomatic management. The overall picture is that of a more unstable but still compartmentalised world: marked by many fault lines, but not – at least for now – by one capable of triggering systemic breakdown.

For investors, it is important to remember that not all major geopolitical events produce lasting shocks in financial markets. Historical analysis shows that highly mediatised events – including wars, diplomatic crises or military tensions – have often had limited, temporary or negligible effects on asset prices. A study of 21 geopolitical shocks, from Pearl Harbor to 9/11, shows that equities fall by an average of 1.2% on the day of the event and up to 5% at the trough. Markets typically bottom out within 22 days and recover within 47 days on average. Consistent with this pattern, recent crises have generated volatility mainly in the early phase of uncertainty, without becoming medium-term drivers of asset prices.

What ultimately matters is not the symbolic or political gravity of an event but its capacity to affect economic fundamentals. Shocks that genuinely move markets are those that slow growth, fuel inflation or impair the functioning of credit markets. Geopolitical events that do not alter macroeconomic prospects tend to remain confined to the markets most directly exposed and are quickly absorbed.

In this regard, it is reassuring to note that global trade flows have remained resilient – even robust – despite heightened geopolitical tension. UN data show that global trade volumes reached new highs in 2025.

Another key factor is the markets’ increasing habituation to repeated shocks. As uncertainty becomes progressively priced in, reactions tend to diminish over time. Markets assume that such crises lack systemic potential; a truly catastrophic event would instead be perceived as a “black swan” – highly unlikely yet extremely damaging. This is why some chronic geopolitical tensions, over time, cease to be genuine market movers.

A world under strain 

In sum, 2025 has been a year of significant global tension, but also a year in which international actors – gradually accepting a new multipolar reality – have begun to engage in more realistic and candid dialogue. 

The major powers, while remaining strategic rivals, have shown a preference for confrontation management over direct conflict. International politics is not dead: it still functions, but according to harsher, less idealistic rules. As John Mearsheimer – a leading international relations scholar and key proponent of “offensive realism” – often notes, in international relations what matters is not what states want to do but what the system compels them to do – and today the system incentivises containment over open warfare.

That said, vigilance remains essential. Geopolitical risks are by nature fluid, and a sudden escalation could still affect commodity prices or global supply chains. However, the most likely scenario remains the current one: the great powers continue to manage crises through sanctions, diplomatic pressure and limited military support while avoiding direct confrontation.

This article is part of our new Strategic Asset Allocation, which sets out our long-term view on markets and informs the strategic positioning of the portfolios managed by our team on your behalf.