Original Title: My 2026 Outlook: The Year Geopolitics Becomes the Macro
Original Author: Steve Hou
Original Translation: Peggy
Editor's Note: The macro theme for 2026 may no longer just be a conventional cycle switch, but a moment where a geopolitical restructuring enters a pricing phase. For decades, the United States has operated as the guarantor of global systems through trade, security, and financial order; now, with the declining share of the U.S. in global GDP and increasing domestic political constraints, this model is shifting from "global coverage" to a more bounded "camp system."
The core judgment of this article is that the investment framework for the next year should shift from traditional "growth-inflation" cycle analysis to judgments regarding strategic camps, supply chain restructuring, and capital expenditure directions. Those who are within the supply chains favored by the U.S., possess credible institutions, industrial capabilities, and energy capacity, are likely to benefit from a new round of global asset reevaluation. Japan, South Korea, leading industrial firms in Latin America and Europe, as well as infrastructure related to power grids, energy storage, automation, robotics, and AI, are all included in this logical chain.
The article emphasizes that the return of manufacturing is not just a political slogan, but a systemic reallocation constrained by labor, energy, grid, and security boundaries. The U.S. cannot complete all production localization alone, hence the importance of allied economies is rising; energy and grids have become hard constraints of industrial policy; AI, being the core battleground of U.S.-China competition, will continue to drive high-intensity investments in computing power, electricity, networking, and the manufacturing stack.
For investors, this means that opportunities in 2026 may not lie within the crowded momentum trading of large U.S. tech stocks, but instead in seeking the "shovel sellers" of this restructuring globally: electrification equipment, industrial automation, energy storage, grid infrastructure, defense bottlenecks, and non-U.S. markets that benefit from supply chain redesign. This article provides not a single asset recommendation, but a geopolitical framework to understand the global macro environment and asset rotation in 2026.
The following is the original text:
The decisive feature of 2026 is not a standard business cycle turning point, but a watershed moment reached by an already unfolding geopolitical reshuffling. For decades, the U.S. has played an expansive role in the global economy: anchoring global trade flows, providing guarantees for security order, and serving as the default guarantor of the post-war order. But this model is changing, as the structural arithmetic has altered: the U.S.'s share of global GDP is no longer sufficient to support a correspondingly broad global commitment, and its domestic political constraints increasingly point towards strategic contraction.
This does not mean American influence is disappearing; rather, it signifies a reconfiguration of that influence. The U.S. is shifting from a broadly-covering global stance to a clearer "camp" model: preferred supply chains, trusted investment channels, and more selective, regionalized security commitments. This is the core catalytic factor behind a series of major correct judgments made over the past two years and will still be the major framework for understanding 2026.
In this new paradigm, the most crucial question for investors has become: who is within this preference system, who is excluded, and which assets will benefit from this redesign?
1) New Camp System: Winners are Production Economies Allied with the U.S.
The outstanding emerging markets are not just those with favorable demographic structures, but those within the American-dominated system that possess strategic consistency, stability, and production capacity. Countries with civil liberties, institutional resilience, and democratic governance will become important because the U.S. camp needs trust: trust in contracts, trust in political continuity, trust in intellectual property protections, and trust in supply chain security.
More importantly, the "U.S. camp" does not limit itself to developing countries. It will also include developed economies with strategic industrial capabilities and technological depth. For example, Japan and South Korea are natural beneficiaries after investment flows out of China and the BRICS camp (excluding India). They are critical nodes in semiconductors, advanced manufacturing, and industrial robotics, which are the backbone of the U.S. camp supply chain.
Meanwhile, the U.S. itself faces a paradox. Politically, the U.S. wants manufacturing to return; strategically, it needs supply chain independence; but economically, it does not have enough labor to fully localize necessary production. Simply put, the U.S. lacks an adequate number of cheap, young workers to build new supply chains entirely on its soil. This limitation makes allied and quasi-allied regions increasingly crucial.
2) Defense Restructuring: From "Big Tent" to "Regional Bastion"
If the first layer of change occurs in the economic realm, the second layer occurs in the security realm. As the U.S. shifts from a "big and open tent" to smaller, more defensible regional bastions, the meaning of "defense" will undergo significant change. New strategic priorities resemble a modernized Monroe Doctrine: focusing on protecting neighboring regions and key passages, rather than maintaining a maximized global reach.
This shift makes Latin America core. It is the U.S.'s home turf and will also be regarded as such by the U.S. Its geopolitical logic is quite direct: if the nearby area is unstable, supply chains cannot be secure. This means that to make the region suitable for large-scale capital deployment and integrate into the U.S. supply chain, political and institutional changes will increasingly be encouraged—whether this encouragement is implicit or explicit.
An important effect is that over time, China's influence in Latin America will gradually be squeezed out. As the region politically shifts to the right and aligns more closely with the U.S., inflation and interest rates may decline, while growth could increase. The mechanism is not mysterious: foreign direct investment increases capital expenditure, expands production capacity, strengthens external balance of payments, and improves monetary credit.
This could form a virtuous cycle: trade growth, accelerating industrial upgrades, economic growth no longer solely reliant on commodity exports, but becoming more diverse. Commodities will remain central, but their spillover effects will increasingly become evident in finance and discretionary consumption, as domestic credit systems deepen, and middle-class consumption becomes more resilient.
3) Energy: A Hard Constraint on Manufacturing Return
Supply chain restructuring faces a hard constraint in the developed world: energy and grid capacity.
As the U.S., Europe, and allied economies attempt to bring production back home and ensure production security, they are discovering that their energy systems are far from adequate: aging grids, insufficient investment, and strategically exposed to unreliable energy sources. This gives rise to a clear theme for 2026: energy shortages will become limiting factors in industrial policy.
This will spur a series of investment impulses:
- Increased energy imports from allies
- Accelerated renewable energy development
- Renewed emphasis on nuclear power
- Massive upgrades to grid networks
- Expansion of logistics and raw material demands
Solar and wind energy have already gained momentum, as they expand faster than traditional baseload infrastructure. Nuclear power cannot be rapidly built through a "gradual" approach; natural gas also cannot be quickly increased without expensive pipeline construction and approvals. In contrast, renewable energy can be deployed modularly, with faster speeds, broader distribution, and politically easier expansion.
Of course, the missing link is reliability. This is precisely where energy storage comes in. Batteries are becoming key tools for peak load management and grid stability, and the continued advancements in battery technology, combined with increasing investments, are making the energy storage value chain strategically significant. The confluence of manufacturing return, energy, and security comes together here: the grid is becoming a national security asset.
4) Europe: In the Same Camp, Constrained by Growth, but Holding the Highest Quality "Shovel Seller" Assets
Europe may become one of the most misunderstood regions in 2026. Due to weak demographics, high energy costs, heavier regulation, and a less developed venture capital ecosystem compared to the U.S., Europe's growth ceiling remains relatively low. In other words, Europe is unlikely to become the engine for the next cycle.
However, Europe's importance lies not in macro vitality, but in its industrial composition. In a fragmented world, Europe is securely within the U.S. camp. Moreover, in those areas where over-investment will occur in the new paradigm, Europe continues to have some of the highest quality global enterprises: power equipment, electrification, grid infrastructure, and industrial automation.
This is also why, even though the European economy lags, European stocks may still perform well: European indices are not merely a reflection of "European demand." They are largely composed of global exporters and multinational suppliers, serving the capital expenditure cycles occurring globally.
Defense: A Shift in Valuation, Not Just Simple Momentum Trading
European defense spending has already experienced a structural upward shift, and the political consensus corresponding to stronger military capabilities is sustainable. However, since the outbreak of the Russia-Ukraine war, the market has revalued much of the readily available upside, and the conflict itself may gradually enter a low-intensity phase. This means European defense opportunities will no longer be broadly exposed to beta, but should focus more on selective bottleneck segments: ammunition, secure electronic devices, aerospace components, and maintenance and logistics.
Power Equipment: Europe as the Electrification Backbone of the New Capital Expenditure Cycle
The true incremental opportunities lie in electrification and the grid. The power systems of the developed world are the underlying constraints behind manufacturing return and AI. The issue is not just generation, but those transmission and distribution equipment that cannot expand quickly enough: transformers, switchgear, grid automation, power electronics, efficient motors, and system integration.
European industrial foundations contain some of these "shovel" categories of globally leading enterprises. Since they serve global capital expenditure rather than European domestic consumption, even if GDP growth in Europe is mediocre, their profits can still grow.
Industrial Automation: Europe as an Enabler of Productivity Improvement
Manufacturing return and near-shore outsourcing will ultimately be constrained by labor scarcity and costs. The only way for high-wage developed economies to remain competitive with global manufacturing is to improve productivity and advance automation. Europe remains a leading supplier in factory automation systems, robotics, industrial sensors, control software, and precision tools.
Therefore, the correct way to position Europe in 2026 is not to see it as a macro-level "European recovery" trade, but rather as a structural composition trade: holding those export-driven, benefiting from global capital expenditure upgrading leaders in industry and infrastructure, while maintaining a more cautious attitude towards European domestic demand sectors.
5) AI: The Core Battleground of U.S.-China Competition
If energy is the physical constraint for manufacturing return, then AI is the strategic constraint of the century. It is the most important battleground in U.S.-China competition, as both countries' leaders increasingly view the race towards superintelligence as a decisive issue.
China has lagged, taking longer to catch up—starting late and facing chip embargoes—but the key is that China has now caught up to a degree that impacts the landscape, and it is hitting the gas. China's domestic AI capital expenditure previously lagged behind the U.S., but this gap is narrowing. This ensures AI will continue to be a target for massive investments, regardless of short-term commercial returns, as it is increasingly seen as strategic infrastructure rather than merely an ordinary industry.
The implications for 2026 are very direct:
AI capital expenditure and national-level coordination will continue to accelerate.
Countries in both camps will increase support and intervention.
The AI value chain will undergo structural differentiation: the U.S. camp and the China camp will each take shape.
Redundant construction means the total investment scale will be larger, which will doubly benefit computing power, electricity, networking, and the manufacturing stack.
Within this framework, AI should be understood broadly—it is not only generative models but also embodied intelligence, automation, and robotics. The year 2026 may become a year of accelerated robotics development, with humanoid robots becoming an important narrative and capital expenditure destination.
Ultimately, compared to infrastructure spending, the economic performance at the application level may be disappointing—until the inevitable clearing arrives. But that story is more likely to unfold in 2027-2028. For 2026, the decisive feature remains investment intensity rather than the maturity of monetization.
6) Implications for Portfolios: Rotating Out of Crowded Large U.S. Tech Stocks
This macro landscape also explains why the global attributes of our value chain index are very important. The U.S. stock market, particularly large U.S. tech stocks, has become bubble-like and overly crowded. Whether through domestic household sectors or international investors, holdings in this sector have become quite concentrated. Even though the U.S. retains structural strength, when positions are extremely crowded, the conditions for sustained momentum become less attractive.
This creates an opportunity: international stocks and non-tech stocks are the most thematically aligned ways to express this outlook. Especially if 2026 becomes a year of rotation—its form may resemble the transitions after 2000, although the fundamentals are not entirely the same.
In other words, if geopolitics is reshaping supply chains, if energy becomes a hard constraint, if defense becomes regionalized, and if AI capital expenditure remains unstoppable, then the path of least resistance is to hold beneficiaries of this restructuring globally, rather than continuing to chase momentum in a small group of large U.S. tech stocks.
Conclusion: One Catalyst, Multiple Expressions
The internal consistency of the 2026 outlook lies in the fact that all things return to the same source: a geopolitical change redefining trade, security, energy, and technological competition. The right framework is not "growth versus inflation," nor is it "demographics versus productivity." The correct framework is: the world is being reorganized into different strategic camps, and supply chain redesign will force capital expenditure to rise, promote risk reevaluation, and reshape winners and losers across different regions and industries.
This is the core catalytic factor behind every major structural judgment made over the past two years. It will also remain the most important macro perspective for understanding 2026.
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