We recently had the opportunity to interview Charles-Henry Monchau, CIO at Syz Group, on our Behind the Markets podcast. Monchau believes the current geopolitical dynamics—combined with unique inflation risks—will cause a shift in paradigm. Here are some highlights of the discussion:

The New FAANGs

Monchau argues the tech sector, which dominated in the last decade, may face new competition from sectors better suited for the changing macroeconomic and geopolitical environment. He proposes to repurpose the acronym “FAANG” for the newly favorable sectors:

• Fuel: as much as would like to use less, the world relies a lot on fuel, and Monchau advocates for pragmatism in the energy transition
• Aerospace and defense: rising conflicts will require more investment
• Agriculture: there are large needs and scare food resources in many parts of the world
• Nuclear and renewables: the energy demands from Europe and sustainable de-carbonization initiatives highlight the importance of nuclear
• Gold and minerals: too much debt can cause a debasement of the dollar versus gold and bitcoin, while the energy transition will support other metals

The Risks of Inflation and Currency Devaluation

Monchau warns inflation may be higher for longer as the world becomes more dangerous and countries invest more in reshoring, rearming and building resilience.

He also suggests the U.S. dollar may lose its status as the dominant reserve currency, as emerging markets seek to emancipate themselves from the petrodollar system. He sees gold, bitcoin and the Swiss franc as potential stores of value in this scenario.

The Challenges and Opportunities for Europe

Monchau expresses concern Europe may be deindustrializing instead of reindustrializing, as it focuses too much on sustainability without considering the economic realities of these decisions. Europe is highly dependent on energy imports, especially from Russia. Its auto industry is lagging in the electric vehicle transition. Europe still has some competitive advantages in the luxury, pharma and aerospace sectors, but many of these are exporters and not reliant on the strength of the European economy for their growth and success.

The Winners and Losers of the New Decade

Monchau expects the U.S. to remain strong, thanks to its energy independence, industrial revival and technological leadership. He also sees potential in some emerging markets, such as India and Mexico, based on favorable demographics, growth prospects and geopolitical alignments—particularly with friend-shoring or nearshoring trends.

On the other hand, he is pessimistic about China, which faces slowing growth, rising debt and increasing tensions with the U.S. and its neighbors.

Consequences for Potential Asset Allocation

Monchau gives some practical advice on how to position one's portfolio for the new decade. He suggests increasing exposure to the new FAANG sectors, as well as to gold and bitcoin. He advises reducing allocations to fixed income, especially long-term bonds, as they are vulnerable to rising inflation. Further, the rising correlation between stocks and bonds is a primary new risk that he does not see fading any time in the near future. Alternatives and commodities play an increasing role in this new world.

This was a fantastic conversation—to listen to the full podcast, click here or listen below.