At its annual conference on 7 October 2025 at the Automobile Club de Monaco, the ACI Monaco (The Financial Markets Association) brought together the banking and finance community to discuss a crucial topic: ‘Above all, be armed’ (Machiavelli) — or how the militarisation of the economy is reshuffling the deck for investors.
Guest of honour Kim Catechis, strategist at the Franklin Templeton Institute, shared his analysis of the vulnerabilities, opportunities and challenges facing investors in this new context.
I spent 36 years in fund management, first in British and European equities, then in emerging markets and finally in global equities. Today, I devote most of my time to strategic research at the Franklin Templeton Institute, which functions as a knowledge-sharing platform. My role is to provide an overview of the major themes that guide long-term investments and to engage with clients to help them integrate these dynamics into their decisions.
For three decades, the global economy operated on the basis of convergence and globalisation. Borders were of little importance, the United States ensured the security of international trade, and priority was given to economic efficiency. That world has disappeared. Washington has ceased to play its role as guarantor, creating a vacuum that has been exploited by other powers. We are seeing the use of every possible lever: any dependency becomes a bargaining chip. This is not a desirable development, but it is now a reality to which we must adapt.
They affect everyone. Supply chains are undergoing a profound reorganisation: we are moving from just-in-time to just-in-case. This makes flows less efficient and forces finance departments to tie up more capital. The defence sector, meanwhile, is expanding. In Europe, budgets are expected to reach between €600 and €800 billion per year over the next two to three decades. This is a strategic necessity: we no longer want to depend on the United States for the maintenance or software updates of our fighter jets, for example. This explains the choice of aircraft such as the Rafale or the Gripen.
The military-industrial complex has also evolved. Today, players such as Microsoft occupy a central place in the cyber domain. Many European technology companies are developing dual-use innovations for both military and civilian applications: drones used for military reconnaissance as well as for disaster relief, and exoskeletons that can be used in industry and in field operations.
Traditional valuation models are no longer sufficient. A company may appear solid on paper but at the same time be excluded from certain markets for reasons of national security. Huawei no longer has a future in Europe or the United States, while Ericsson and Nokia cannot hope for contracts in China and face uncertain prospects in the United States.
We must now think in terms of a multipolar world. Three centres of gravity are emerging: the United States, China and Europe. The European Union, the world’s second largest economy and largest consumer market, has a unique advantage: its ability to impose its standards. But to be credible, it must invest heavily in a military deterrent commensurate with its economic weight. This is an achievable goal within eight years. In a tough world, it is better to appear threatening, even if you are not.
Russia is following a path that increasingly resembles that of North Korea. Even if Vladimir Putin were to leave power tomorrow, it would take a generation to transform the existing structures and mentalities. The Russian economy is stifled by the war effort, which accounts for nearly 8% of GDP and 46% of the budget. The government is broadening the tax base, increasing VAT and directing credit directly from the Ministry of Finance. The country is increasingly dependent on Beijing, in an asymmetrical relationship that further weakens it.
Emerging markets, meanwhile, are suffering from polarisation and trade barriers. American reshoring is accompanied by automation, which limits job creation. The real problem remains the weakness of human capital. In India and China, barely a third of the working population completes secondary education. Yet the manufacturing industry of the future will depend above all on innovation and a skilled workforce.
I am looking first at the United States. The average tariff rate has risen from 2.3% last December to around 16% today. The end-of-year figures will be essential for measuring the impact of customs measures on the US and EU economies.
In China, growth in sectors such as electric vehicles is not translating into profitability: companies are bigger but earning less. The problem is structural and its resolution depends on governance, which makes the timetable unpredictable.
In Europe, the trajectory will be slower but steady, in line with the ‘small steps strategy’ initiated by Mario Draghi. Germany will be the key player, thanks in particular to an industrial recovery financed by Bunds that no one will refuse to hold.
Every investor acts according to their convictions, constraints and obligations. Some sub-sectors will remain closed for reasons of national security. But paradoxically, the current period offers an unprecedented opportunity: never in my career have I seen so many companies ready to welcome private or institutional capital. The path to private credit and alternative assets is open. This creates significant opportunities, even if they come with a structural geopolitical risk premium.
