[I am leading on a webinar this Friday, covering the impact of war, AI, and the end of a largely positive 40 year cycle. See details at the end of this note. It is open to DW clients, and you are welcome to pass this along to friends and family. This is perhaps the most important presentation for clients in 40 years]
Since our last commentary in December, financial markets have continued to navigate extraordinary complexity — a new war, an accelerating AI revolution, and the slow but unmistakeable unravelling of a 40-year era of US economic dominance. We have been here before in the broad historical sense, but not in our lifetimes, which is why so many remain complacent, not just many individual investors, but much of our industry.
The themes we have consistently highlighted, Value-style investing, the attractions of the UK, Asia, and gold, and the serious risks embedded in the still-overvalued US stock market, are becoming ever more visible to investors. This is encouraging as there have been clear opportunities to make profits for clients. Let us bring you up to date.
A World Changing Before Our Eyes
Ray Dalio, founder of Bridgewater Associates and author of The Changing World Order, has spent years mapping 500-plus years of economic and geopolitical cycles. His framework has been, as he himself puts it, “spookily accurate” in describing the events unfolding since 2021. In recent weeks Dalio now believes we have entered Stage 6 of his historical template. This is the period when the existing world order begins to break down, not only within the dominant nation, but between nations.
The evidence is growing. The US Supreme Court has been publicly attacked by Trump for upholding the very constitution that Americans hold so dear. Abraham Lincoln’s warning rings out across the centuries:
“A house divided against itself cannot stand”
Even German Chancellor Friedrich Merz, at the Munich Security Conference, acknowledged publicly that “the world order as it has stood for decades no longer exists.”
For much of this period, remarkably, financial markets barely blinked. The FTSE 100 and 250 continued to edge upwards even as these seismic pronouncements landed. The US continued to underperform, but without a sharp collapse. The last few weeks have been a reminder that this calm cannot be taken for granted as the outbreak of a new war in the Middle East has unsettled markets, though nothing drastic. We remain watchful and in the meantime, the opportunities are real and we have been actively pursuing them.
The UK: Bad News Is Good News
One of the more counter-intuitive themes of 2026 is that bad economic news continues to be good news for the UK stock market. This is not as strange as it sounds. When assets are as cheap as UK equities, and when weak data reinforces the case for sharper interest rate cuts, disappointing headlines can in fact underpin the potential for a bounce as bargain hunters move in.
Recent manufacturing data shows a healthy rate of expansion, stronger than expected, and more than the gloom-ridden media would have you believe. Consumer confidence, though dipping slightly in February, remains higher than a year ago. Conversations with housebuilders suggest viewings and reservations have been improving week on week so far in 2026.
It is possible that UK interest rates could fall as far as 2.75% within a year. The Bank of England faces an economy that is in middling shape, not booming, but not collapsing, with inflation easing. This is precisely the environment in which rate cuts are warranted, and global institutional investors know it.
The political backdrop remains messy, and the government has yet to demonstrate the kind of reforms that would really accelerate growth. But for patient investors, the combination of cheap valuations, falling interest rates, and a growing recognition among global institutions of the UK’s attractions, is a powerful backdrop.
The United States: A Slow Leak in the Bubble
We have long warned about the extraordinary over-valuation of the US stock market, and the numbers remain sobering.
Based on 61 years of corporate earnings history, the S&P 500 would need to fall more than 30% simply to reach median fair value.
The Shiller PE, a valuation measure based on data stretching back to 1850, implies a potential fall of over 50%.
And these figures do not account for the sharp overshooting that typically accompanies genuine market panics.
The US continues to underperform its global peers, including the UK. The bubble has not yet burst, which is typical. Major market peaks do not collapse overnight. They leak air slowly, with rallies that tempt investors back in, followed by renewed weakness. The embers of mania still burn.
What has changed is the pace of erosion in confidence. Trump’s irrational behaviour, and the ongoing assault on global institutions and the rule of law, is destroying the idea of “US exceptionalism”. It is early days for a full reckoning, but the direction of travel is clear. Capital is quietly but steadily rotating away from the US.
For our discretionary portfolios, we continue to almost entirely avoid the US stock market.
Asia: Japan Stirs, China Builds
Japan has been one of the most exciting markets of early 2026. The re-election of Prime Minister Sanae Takaichi on 8th February, with a historic supermajority for the Liberal Democratic Party, injected a wave of optimism. Their stock market responded positively, building on the already compelling case for Japan based on cheap valuations and a host of reforms to help unlock value.
Warren Buffett, the world’s most successful long-term investor, continued to add to his large stakes in Japan, saying he intends to hold his positions for “many decades”. This is not a man who invests on a whim. The structural reforms unlocking shareholder value in Japan are real, persistent, and still in their relatively early stages.
China also continues to offer opportunities for patient investors. The government’s commitment to stimulating domestic consumer demand is beginning to show results, though more action seems likely. The just-published 15th Five-Year Plan, covering 2026 to 2030, reinforces the point with its emphasis on industrial upgrading, technological self-reliance, and expanded domestic demand. For long-term investors, that kind of structural commitment matters. Valuations remain attractive, and the market looks to be in the early stages of a multi-year recovery.
Gold, Oil, And The Dollar
Gold hit more record highs in early 2026 before suffering a sharp correction, down more than 20% at its worst. A timely reminder to those who call it a safe haven have a long memory for hubris. Falls of this nature can take months to fully play out, and the moment of maximum pessimism, which typically signals an opportunity has probably not yet arrived.
Oil is a different story. Back in November, when the consensus was overwhelmingly negative on oil and energy, we flagged the opportunity. Since then oil and energy funds have made steady progress.
Trump’s war of choice in the Near East has introduced the risk of somewhat higher oil prices, and that is both an opportunity and a risk which we are monitoring closely.
Uranium remains perhaps the most quietly compelling story of all. Nuclear energy is increasingly central to the energy security of major economies, and for the energy demands artificial intelligence. As demand continues to grow the supply is gradually being eroded. Perhaps bizarrely, the fuel for nuclear reactors is a steadier investment choice than gold, the mythical safe haven.
The AI Revolution: Opportunity, Disruption, And A Word of Caution
Artificial intelligence has been dominating headlines for some time now, but February felt somewhat of a step change. Anthropic released new AI tools capable of automating large chunks of what we politely call “knowledge work”, from legal, to sales, marketing, and data analysis. A range of companies operating in knowledge and professional services suffered double-digit percentage losses as their wobbly futures began to come into focus.
Matt Shumer, a New York-based AI entrepreneur, published a piece in February that was viewed over 60 million times, in which he argued that AI is advancing far faster than public perception, and that if your job happens on a screen, significant parts of it are at severe risk. Whether or not one accepts every element of this thesis, the direction of travel is clear.
For investors, the key distinction, and one we have made for some time, is between the potential of AI as a technology and the investment case for the companies currently associated with AI. These are not the same thing. The greatest long-term rewards from AI will likely fall not to the technology giants spending hundreds of billions building infrastructure, but to the companies across all sectors that adopt and adapt to AI fastest.
The US technology giants, the so-called Magnificent Seven, remain extremely highly valued. China’s DeepSeek demonstrated last year that the assumptions underpinning the AI investment mania, and the belief in US supremacy, were easily challenged.
Our Investment Stance: Value, Momentum, and Protection
Across all discretionary portfolios we continue to pursue the four pillars that have guided our investment approach in recent years:
First, we avoid the most obvious accidents-waiting-to-happen. The US stock market and overvalued technology stocks remain the primary concern, but also certain bond markets where yields may not adequately compensate for the risks ahead.
Second, we focus on what is relatively cheap. The UK, Japan, China, and selected emerging markets offer valuations that are genuinely attractive and does not mean low quality. All are home to world-class companies trading at attractive prices. This is where patience should be rewarded.
Third, we look for what is resilient and appropriate to the prevailing environment. Value-style funds, real assets including metals and energy, and markets with genuine structural reform stories.
Fourth, we strictly apply our stop-loss strategy. This is non-negotiable. It is the mechanism by which we ensure that small losses do not become large life-altering ones, while keeping us in a position to act when opportunities arise.
Looking Ahead
We are in a period of historical change on a number of fronts. The geopolitical, monetary, and market structures that have governed the world since 1945 are under unprecedented pressure.
The US is turning inward. Europe and the UK are responding with a seriousness not seen since the Cold War. Asia is rising steadily in influence and confidence, and AI is beginning to reshape the economics of knowledge work in ways that will be felt for decades. And across a remarkable number of countries, not just the UK, domestic politics are giving pause for thought.
Yet amid this jumble of change, there are real and actionable investment opportunities. The UK, Japan, China, oil and energy, and selected Value-style strategies have all delivered over recent months, and we believe the foundations for continued progress are in place. But we must navigate the risks with clear eyes, a steady hand, and a healthy dose of humility.
Join Us On 20th March 2026
We will explore many of these themes in greater detail in a webinar on Friday 20th March, including the implications of the AI revolution and what it may mean for portfolios in the years ahead. This may prove to be one of the most important webinars we have run in our 40-year history.
We will send a reminder with full details in the coming days, but the date and registration link are below for those who would like to secure a place now.
Date: Friday 20th March 2026
Time: Midday – 1pm GMT
Register here: https://us02web.zoom.us/webinar/register/1417733330842/WN_UTGIPjALQkylw3kaYM3bIA
We hope to see you there, and if you know someone who might find this discussion useful, please pass the link on.
