2026 will be the year of geopolitics, not AI; Emerging markets still resilient: Geoff Dennis

The prediction by emerging markets expert Geoff Dennis that geopolitics, rather than Artificial Intelligence (AI), will dominate global markets in 2026 offers a crucial lens through which to understand the evolving international economic landscape. This perspective challenges the popular narrative often centered on technological disruption and instead brings to the forefront the enduring, and perhaps intensifying, impact of political and strategic rivalries on global finance.

**Background Context: A World in Flux**

The global economy has been navigating a series of unprecedented challenges since the turn of the decade. The COVID-19 pandemic triggered supply chain disruptions, massive fiscal stimulus measures, and subsequent inflationary pressures. This was soon compounded by the Russia-Ukraine war, which erupted in February 2022, leading to a significant spike in energy and food prices and exacerbating geopolitical tensions. Simultaneously, the US Federal Reserve, along with other major central banks, embarked on an aggressive interest rate hiking cycle to combat inflation, making capital more expensive globally and strengthening the US dollar. Amidst these headwinds, the world has also witnessed a growing trend of deglobalization, with countries increasingly prioritizing national security and supply chain resilience over purely economic efficiency. This has manifested in trade wars, technology restrictions, and a general fragmentation of global economic blocs. It is against this backdrop of high inflation, tight monetary policy, and escalating geopolitical risks that Dennis's prediction gains significant relevance.

**What Geoff Dennis Predicts**

Dennis's core assertion is that by 2026, the primary drivers of market sentiment and performance will be geopolitical flashpoints – think ongoing conflicts, trade disputes, energy security concerns, and strategic rivalries – rather than the transformative, but perhaps slower-burning, effects of AI. He notes the remarkable resilience of emerging markets (EMs) despite adverse conditions like rising oil prices and a strong US dollar, which typically pressure EM economies. Furthermore, he anticipates only limited interest rate cuts from the US Federal Reserve, suggesting that the era of cheap money might not return quickly. This combination of persistent geopolitical risk and a less accommodative monetary environment makes the continued outperformance of EMs a significant trend to watch.

**Key Stakeholders and Their Roles**

1. **Emerging Markets (EMs)**: These are the central figures in Dennis's analysis. Countries like India, Brazil, Indonesia, and various African nations are characterized by rapid growth, large populations, and increasing integration into the global economy. Their resilience suggests internal strengths, diversification efforts, and perhaps a reduced vulnerability to traditional external shocks. Their performance is critical for global growth.

2. **Developed Economies and Central Banks (e.g., US Federal Reserve)**: The monetary policy decisions of central banks like the US Fed have a profound global impact. Interest rate hikes in developed economies often lead to capital outflows from EMs, a strengthening dollar, and increased debt servicing costs for EM governments and corporations. Dennis's expectation of limited rate cuts implies continued pressure on global liquidity.

3. **Geopolitical Actors**: Major powers such as the United States, China, Russia, and the European Union, along with regional blocs, are key in shaping the geopolitical landscape. Their diplomatic engagements, trade policies, military actions, and strategic alliances directly influence global stability, supply chains, and investor confidence.

4. **Global Investors**: Institutional and individual investors, fund managers, and multinational corporations make decisions based on perceived risks and opportunities. Their allocation of capital between developed and emerging markets, and across different asset classes, dictates market performance.

**Significance for India**

India, as one of the largest and fastest-growing emerging markets, stands at a critical juncture. Dennis's analysis holds immense significance for India across multiple dimensions:

* **Economic Resilience**: India's economy has demonstrated robust growth despite global slowdowns. Factors like strong domestic demand, government infrastructure spending (e.g., National Infrastructure Pipeline), and a relatively diversified economy contribute to this. If EMs continue to be resilient, India is well-positioned to attract Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII), which are crucial for capital formation and job creation. The government's 'Make in India' initiative and production-linked incentive (PLI) schemes aim to leverage global supply chain shifts.

* **Inflation Management**: Rising oil prices, a constant concern for net oil importers like India, directly impact inflation and the current account deficit. The Reserve Bank of India (RBI) vigilantly monitors these external factors while formulating its monetary policy, guided by the inflation targeting framework. Sustained higher oil prices would test the RBI's ability to maintain price stability while supporting growth.

* **Foreign Policy and Strategic Autonomy**: In a geopolitically charged world, India's foreign policy of 'strategic autonomy' becomes even more vital. Balancing relationships with major powers (US, Russia, China) while pursuing its national interests, such as energy security and trade diversification, is paramount. India's active participation in forums like the G20, BRICS, and QUAD reflects its growing influence and its efforts to shape a multipolar world order, aligning with the Directive Principle of State Policy under **Article 51** of the Indian Constitution, which mandates the state to promote international peace and security and maintain just and honourable relations between nations.

* **Capital Flows and Rupee Stability**: A strong US dollar and limited Fed rate cuts could lead to continued pressure on the Indian Rupee, making imports more expensive. However, sustained EM resilience could also mean continued FII inflows, helping to stabilize the currency. The government's foreign exchange management policies, guided by the RBI, become crucial in this scenario.

**Historical Context and Future Implications**

History is replete with examples of geopolitics dictating economic outcomes. From the Cold War's impact on global trade blocs to the oil shocks of the 1970s, political events have frequently overshadowed purely economic fundamentals. The current era, marked by increasing great-power competition and regional conflicts, echoes these past trends. The shift away from hyper-globalization towards 'friend-shoring' and diversification of supply chains, partly driven by geopolitical considerations, is a significant structural change.

Looking ahead, Dennis's prediction implies continued market volatility and a need for investors and policymakers to remain agile. For India, this means:

* **Diversification**: Further diversifying trade partners, energy sources, and supply chains to mitigate risks from geopolitical disruptions. This aligns with policies like the 'Act East' and 'Look West' initiatives.

* **Fiscal Prudence**: Maintaining fiscal discipline, as outlined by the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, becomes even more important to build buffers against external shocks.

* **Strengthening Domestic Economy**: Continued focus on structural reforms, boosting manufacturing, and enhancing ease of doing business will bolster India's internal resilience against global uncertainties, contributing to the welfare state envisioned by **Articles 38 and 39** of the Constitution.

In essence, while AI promises a technological revolution, the immediate future of global markets, particularly for agile emerging economies like India, will be defined by how nations navigate the complex and often unpredictable currents of international politics and strategy. India's ability to leverage its demographic dividend, strengthen its domestic economy, and pursue a balanced foreign policy will be key to thriving in this geopolitically charged environment.