Global crises are piling up — wars, trade conflicts, crop failures and extreme weather — and the traditional hedge of government bonds is losing its protective value. With superpower rivalry intensifying and the U.S. retreating from its role as global policeman, bond yields must rise to compensate for diminished diversification benefits. The correlation breakdown is already visible: during Wednesday's flare-up in the U.S.-Israeli war on Iran, stocks, bonds and gold all fell together, leaving investors with nowhere to hide.

Raphael Arndt, chief executive of Australia's Future Fund, the country's sovereign-wealth fund, reached a counterintuitive conclusion after the pandemic: increase equity exposure. His team recognized that geopolitics has returned as a dominant market force, governments are expanding their economic footprint, and populist politics are reshaping policy frameworks. The old 60/40 portfolio construction no longer reflects a world where fiscal dominance and supply-side shocks drive inflation volatility.

This shift implies a structural repricing of risk assets. If sovereign debt can no longer be relied upon as a crisis buffer, equities — despite their volatility — become the primary vehicle for capturing growth in an era of big government spending and industrial policy. Investors must accept higher portfolio drawdowns as the cost of maintaining real returns when correlations converge toward one.