Something strange is happening on the financial markets and almost nobody is talking about it. Uncertainty, as measured by the World Uncertainty Index, has roughly doubled since the start of 2025. Trade is fragmenting. Geopolitical blocs are hardening. Physical climate risk is increasing as insurance retreats from exposed assets.
These are all trends that have been building for years. And yet the MSCI World has tripled since 2008, while world GDP grew around 50% over the same period. Financial markets do not seem to care. We should not see this as reassuring, however, but as a serious problem.
Three props, each eroding
The calm in financial markets rests on three structural supports. None of them reflects genuine economic stability, however.
The first is concentration. The top ten stocks now count for 25% of the MSCI World's total weight, up from around 9% in 2015. When an index is this top-heavy, its performance tells you very little about the broad economy. It only tells you something about seven companies and about the narrative surrounding artificial intelligence. When the Magnificent Seven rise, the index rises. Everything else could stagnate. And it largely did. Moreover, this concentration is a market failure in itself: markets price the (expected) high returns from these companies, but these can only be made through their excess market power.
The second is the central bank backstop. Since 2008, markets have learned a simple and rational lesson: dips get bought, because the put is always there. The Federal Reserve and ECB balance sheets expanded from under USD 2 trillion combined to over USD 15 trillion at their peak. Risk did not disappear but was merely suppressed, repriced as if the backstop were permanent. Markets stopped asking whether an asset is worth what it costs. They started expecting central bank support in case of failure.
The third is finance feeding itself.Global financial intermediation now stands at USD 410 trillion. This is more than three times world GDP and roughly double what it was a decade ago. Global assets under management amounted to USD 147 trillion in 2025, exceeding world annual output for the first time. Most secondary market activity recirculates within the financial system, completely disconnected from the real economy. The consequence is visible in the data: house prices and the value of equity and other asset classes have massively outpaced consumer prices. Meanwhile, the share of labour in the national income has been falling structurally in recent years. Wealth has diverged from income. A structurally defining feature of hyper-capitalism.
Each of these three props buys time. None changes the underlying reality.
Displacing rather than resolving
Better than most economic theories, sociologist Wolfgang Streeck’s Buying Time: The Delayed Crisis of Democratic Capitalism (2014) explains how Western capitalism has survived since 1980, not by resolving its central contradiction but by displacing it, deferring the cost: always onto someone else, always at greater scale.This contradiction is the one between capital accumulation and democratic legitimacy. Each displacement generates a new crisis. Each new crisis requires a new displacement. Each displacement is larger than the last.
The sequence is striking once you see it. In the 1980s and early 1990s, displacement started with labour arbitrage and trade. Wages were suppressed through globalisation; productivity gains benefited capital. In the decade up to the financial crisis in 2008, household debt replaced wages: credit expansion maintained consumption after wage growth stalled. After the financial crisis, private debt became sovereign debt, as governments absorbed financial system losses and then imposed austerity to manage the consequences. In the years up to 2020, legitimacy was consumed through populism, Brexit, trade wars and electoral disruption. All these reflected the accumulated cost of the previous three phases. And since 2020: fiscal dominance, monetary printing and in the current phase geo-fragmentation combined with deregulation. Central banks and treasuries blurred their boundaries. Geopolitical blocs have begun to decouple supply chains and finance.
What distinguishes the current phase from all the previous ones is the absence of an obvious next step. Each earlier deferral had a clear institutional actor doing the displacing: corporations, households, governments, political entrepreneurs. The current deferral is happening at the level of the democratic system itself. The state form is not consolidating or hollowing out, but eroding. And there is no actor positioned behind it ready to absorb the next displacement. This has looked like a dead end before. But each previous deferral left institutions intact enough to carry the next one. That is less obviously true now.
The fundamental relationship that does not go away
For investors, the question is what it means when the deferral mechanism finally runs out. The analytical point that matters most for investors, is that financial returns depend on economic reality. They are claims on it. Equity represents a share of future corporate earnings. Bonds represent a claim on future cash flows. Those earnings and cash flows derive, ultimately, from real economic activity: labour, natural systems, social stability.
Although this seems obvious, it can’t be seen on any investment-relevant horizon. Computing the 30-year rolling Pearson correlation between world real GDP per capita growth and equity total returns using World Bank data and Damodaran's historical return series, it oscillates between –0.29 and +0.01 throughout 1990–2024. Near zero, often negative.
The reason for this is structural. Over any horizon investors actually operate on, returns are driven by liquidity, sentiment, and the three props described above, not by underlying economic growth. The long-run anchor exists, but the rope connecting financial prices to real-economy fundamentals is long enough that it never appears taut. Until it does.
Since 1960, real world GDP per capita has grown by 223%. The S&P 500 total return index has grown by roughly 61,000%. These numbers suggest there is no link between finance and the real economy. That would be the wrong conclusion, however. While it can persist for years, such a disconnect cannot go on indefinitely. When it closes, it does not do so gradually but suddenly. The 2022 bond crash was such a moment. Liberation Day tariffs, PE valuation compression, insurance retreating from climate-exposed assets are others.
The three structural props buy time but they do not change the fundamental relationship between finance and the real economy.
Investment consequences
Traditional diversification assumes uncorrelated risks. Systemic risks, however, are correlated by definition. In 2008, 2020 and 2022, equities, bonds, real estate and emerging markets all fell together when it mattered most. A portfolio spread across many different asset classes and markets does not protect you against civilisational headwinds. It is therefore not a matter of whether you are diversified, but what your exposures are actually anchored in.
This is where the impact approach to investing has a structural and not only a moral advantage. Investors who systematically understand what their capital helps build in the real world and who select assets on the basis of genuine economic activity rather than financial engineering, are differently positioned with respect to each of the three props described above.
The concentration risk does not affect them in the same way, because they are not benchmarked to capitalisation-weighted indices dominated by the Magnificent Seven. Their central bank backstop dependency is lower, because real cash derives from real assets: energy transition infrastructure, social housing, direct lending do not require the put to sustain their value. And the sustainability and geopolitical risks are more visible, because understanding what a business actually does is prerequisite to the investment thesis.
There is a specific point worth making about private markets. Most investors use them for return smoothing: the absence of mark-to-market creates the impression of stability. But rather than stability it is deferred recognition. When systemic risks are repriced, private valuations follow; they simply follow later and with less transparency. The right case for private markets is different: genuine long-duration exposure to real-world activity, chosen because the underlying activity is durable. The risk lens and the impact lens point to the same thing. Understanding what an asset does in the world is how you understand its risk profile.
A question of when
Conventional investors will adapt to the new reality. They always do. The question is whether they adapt before or after it is priced in.
Those who have always understood what their capital does and those who have always considered real-world outcomes rather than benchmark construction are already well positioned. Their framework never relied on the props in the first place. They see the risks before they appear on a Bloomberg screen.
Three recommendations, in this order. First, know what your capital contributes to in the real world. Forget about ratings or scores, but look at actual economic activity: who benefits, what is built, what degraded. Second, understand the real risks before they are priced in: ecological, geopolitical, institutional. And third, build on systemic resilience rather than on diversification, because the next repricing will not be a one-time shock. It will be a structural break.
Each step only works if you took the previous one. Most portfolios are built on step three, with steps one and two usually skipped. No wonder they’ll ultimately fail.
The rules of investing were written for a stable world. That world is gone.
