Rethinking Foundational Beliefs: 

This blog concludes the Rethinking Foundational Beliefs series by revisiting one of the most persistent assumptions in investing: that politics are separate from market fundamentals. For much of modern investing history, that distinction largely held. Elections, trade disputes and geopolitical tensions could create short-term market volatility, but over time, investors returned their focus to investing fundamentals like earnings and economic growth. Politics created short-term noise and fundamentals determined returns. 

Does this dynamic still hold true? Not entirely.

Today, geopolitics have become more than just noise for markets and are increasingly having a lasting impact on them. Government policies are increasingly altering supply chains, directing investment flows and redefining competitive advantages. This represents an important shift in how investing should be understood. 

Governments today are progressively viewing policy through the lenses of national security, economic resilience, energy independence and technological leadership. These priorities may not always maximize efficiency, but they increasingly influence where capital flows, making governments active participants in shaping economic outcomes. Examples of this influence include semiconductors, energy and critical minerals. 

Semiconductors – As semiconductors have become foundational to both modern economies and national security, governments increasingly view them as strategic assets rather than simply commercial products. For decades the U.S. maintained leadership when it came to chip design and software and much of the world’s manufacturing capacity migrated overseas. Today, concerns over supply-chain resilience, technological leadership and defense capabilities have prompted a major policy shift. 

Through initiatives such as the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, alongside tariffs, export controls and incentives for domestic manufacturing, governments are actively reshaping semiconductor supply chains. As of 2025, the U.S. Department of Commerce had awarded approximately US$30.9 billion across 40 semiconductor projects, reflecting a broader effort to strengthen domestic production and reduce strategic dependence on foreign manufacturing.¹

Energy – Russia’s invasion of Ukraine, together with ongoing instability in the Middle East, reinforced how vulnerable countries can become when they rely heavily on imported energy. Governments that had long prioritized efficiency and global energy markets are now increasingly diversifying their energy sources to improve resilience. This has accelerated investment in Liquefied Natural Gas (LNG) import capacity, electricity infrastructure and domestic energy production, including both traditional and renewable energy sources.² What initially appeared to be temporary geopolitical events have instead driven lasting changes in energy policy and investment priorities that continue to reshape global capital flows.

A clear example of this is Germany's response to the European energy crisis following Russia's invasion of Ukraine. To reduce its dependence on Russian natural gas, Germany rapidly invested in LNG import infrastructure, including floating storage and regasification units (FSRUs) and new LNG terminals. These investments were driven primarily by energy security considerations rather than pure market efficiency, illustrating how geopolitical priorities can redirect capital flows and reshape long-term infrastructure investment.³ The same dynamic is evident in the Middle East, where geopolitical uncertainty is prompting countries to diversify energy supply channels and reduce concentration risk.

Critical Minerals – Governments are increasingly treating critical minerals as strategic assets rather than ordinary commodities. Materials such as lithium, graphite, rare earth elements and copper underpin advanced manufacturing, artificial intelligence (AI), defense systems and energy infrastructure, yet production and processing remain highly concentrated in a handful of countries. In response, governments across North America, Europe and Asia are investing in domestic mining, refining and allied supply chains to reduce strategic dependence and improve resilience.⁴ These efforts reflect a broader shift toward industrial policy that is reshaping capital allocation and creating new competitive advantages.

Canada's support for domestic lithium production provides a great example of this. Through its Critical Minerals Strategy, the federal government has partnered with companies, such as Frontier Lithium, to develop mining and processing capacity in Ontario, helping establish a domestic battery supply chain. By supporting projects that advance strategic minerals production and reduce reliance on foreign suppliers, governments are actively influencing capital allocation and industrial development in sectors viewed as vital to future economic competitiveness.⁵

These examples reflect long-term strategic priorities that help redirect capital flows, reshape competitive dynamics and ultimately influence investment decisions.

Governments are helping shape where capital flows, which industries expand, how supply chains are built and where competitive advantages emerge. For investors, understanding that shift may prove just as important as understanding any economic indicator, valuation metric or market cycle moving forward.

For companies, success increasingly depends not only on execution, but also on strategic relevance.

Businesses operating in sectors aligned with government priorities, such as energy infrastructure, defense, AI, advanced manufacturing and critical minerals, may benefit from policy support, investment incentives and stronger long-term demand visibility. Conversely, industries exposed to geopolitical friction may face higher costs, increased uncertainty and greater operational complexity. This blurs the traditional distinction between macro and micro analysis and understanding a company's earnings outlook increasingly requires an understanding of the policy environment in which it operates.

As geopolitical priorities continue to evolve, the gap between policy beneficiaries and policy headwinds may widen, creating both opportunities and risks. Portfolio diversification may increasingly require exposure across different political and policy regimes, in addition to geographies and asset classes.