Power Plays: Investing in a New Resource Reality

We have entered a new resource reality. The availability and price volatility of commodities is being reshaped by regional conflicts, geopolitical power dynamics, and a massive technological leap in the form of AI.

This edition of the Market Know-How explores how natural resources, particularly critical minerals, sit at the intersections of macro and market themes, and megatrends like electrification, AI and data centers, and national security.

As high demand for commodities collides with constrained supply, we also examine how nations enter the race for resources from vastly different starting points—some resource-rich like China and the US, others like Europe and Japan more exposed to concentrated supply chains.

For investors, we believe this environment creates opportunities across:

Public Equities: Sectors providing exposure across the resource value chain.

Fixed Income: The growth of green bonds as a liquid asset class.

Alternatives: Infrastructure requirements for AI and electrification.

Ultimately, we believe that navigating the dynamics of this new resource reality is no longer a strategic choice but a fundamental necessity for achieving effective diversification and long-term growth in an increasingly complex global landscape.

Long-Term Macro Themes

In our view, the next economic cycle will be characterized by higher inflation, elevated interest rates, and heightened macroeconomic volatility, driven by six key factors. We believe investors need to position their portfolios for CHANGE.

CHANGE

Climate transition – High level of debt – Aging demographics – New finance – Global fragmentation – Evolving technology

• We believe the future is resource-intensive. In our view, the bottleneck will not be capital; it will be materials. Natural resources sit at the center of every major secular theme: AI, defense, clean energy, and electrification. Each one relies on the same critical inputs— copper, lithium, nickel, rare earths, specialty metals—yet supply remains constrained.
• Global electricity consumption for data centers is projected to double to reach around 945 TWh by 2030,¹ equivalent to Japan's entire electricity consumption. Lithium demand could rise fivefold by 2040. Graphite and nickel demand is expected to double in the same period to 2040. Copper is set to face a major supply deficit of 30% by 2035.² China refines 19 of 20 strategic minerals, creating structural chokepoints across wind, defense, and high-density power systems.³
• This isn't a cyclical story. It's a structural repricing of the physical world. The technologies defining the next two decades, including AI infrastructure, electrified grids, and advanced weapons systems, are materially more resource-intensive than anything they replace. Every AI cluster needs grid buildout. Every grid buildout needs copper and rare earths. Every defense modernization needs magnets, alloys, and processed minerals that flow through a handful of countries.
• Winners and losers are already emerging. Economies at the roots of supply chains, particularly resource-rich emerging markets, are structurally better positioned as mineral-intensive buildouts accelerate. Permitting speed, processing capacity, and supply access will increasingly separate outperformers from the rest.
• For investors, the "material layer" is now the allocation edge. The strategic premium sits at structural chokepoints: companies and sectors that control, enhance efficiency in, substitute for, or recycle the critical inputs the world can't build without.

Short-Term Macro Themes

Nations enter the race for critical materials from vastly different starting points. Some are resource-rich like China and the US, others like Europe and Japan are exposed to concentrated supply chains. However, we believe readiness, not just reserves, will determine who achieves lasting resource and economic security. Countries are pursuing it through distinct but overlapping playbooks: protectionism (the US and Europe), re-industrialization (the US, Europe, and China), and strategic alliances (Europe, China, and Japan).

America first? Not without allies.

• The US starts from a position of strength. It is a net energy exporter, largely self-sufficient in defense, and the global leader in AI—home to most frontier model developers and dominant in compute, cloud, and advanced chips. These advantages position it well as electrification and AI drive surging demand for power, minerals, and manufacturing capacity.
• But key vulnerabilities remain. China controls 60–90% of critical mineral processing. AI and datacenter power demand could double or triple by 2030,⁴ straining the grid. And chokepoints in semiconductors, specialty metals, and transmission infrastructure threaten both industry and defense.
• The US government is acting fast. The Section 232 determination labeled Chinese mineral dependence a national-security threat, triggering tariffs and domestic incentives. New mineral-security pacts with allies—Australia, Saudi Arabia, Southeast Asia, the DRC, and Ukraine—aim to build processing capacity outside China. Combined with federal programs (Genesis Mission,⁵ Pax Silica,⁶ and Project Vault)⁷ and broader re-industrialization legislation, the message is clear: resource security is now central to US economic and geopolitical strategy.
• At the same time, the US is rewriting the broader geopolitical playbook—putting domestic economic interests first, asserting control over resource-rich regions, and using trade and security tools to reinforce its position, even as this adds volatility to an already fragile global order.

Europe: Racing to catch up

• Europe has made real progress—renewables are at record highs, sources of energy are more diversified, defense is being ramped up, and there is a sense of urgency to act—but deep vulnerabilities persist. The EU still imports over half its energy. The UK depends on the world for ~44%. And AI-driven power demand is only making that worse.
• The infrastructure can't keep up. A fragmented, decades-old grid leaves Europe structurally disadvantaged against regions with more scalable energy systems.
• Supply chain and defense gaps are just as stark. Critical AI and clean-energy inputs still run through Chinese rare earths. Europe holds only a sliver of global AI datacenter capacity. The UK military is stretched thin by years of underfunding. EU defense spending is rising—thanks to ReArm Europe and Germany's fiscal reform —but hitting 2.5–3% of GDP across all countries and rebuilding industrial depth will take years.⁸
• Policy is accelerating. The "One Europe, One Market”⁹ roadmap pushes deeper integration, faster consolidation, and deregulation to close the competitiveness gap flagged by the Draghi Report.¹⁰ Energy security moves—long-term LNG deals, grid upgrades, nuclear revival—aim to cushion supply shocks, though reliance on the US, Qatar, and China lingers. The Critical Raw Materials Act tackles mineral dependence head-on with recycling mandates and new industrial alliances.¹¹
• Europe is racing to build the resource and industrial backbone it needs to compete, but it's starting from behind.

Japan: Tech edge, resource scarcity

• Japan is a tech powerhouse with world-class capabilities in semiconductor equipment, robotics, and advanced materials. The government is backing that with almost ¥2 trillion ($13 billion) for AI compute and has already doubled defense spending to 2% of GDP, with new PM Sanae Takaichi pledging more.¹²
• But the dependencies are severe. Japan imports ~90% of its energy and relies almost entirely on foreign sources for critical minerals, with China dominating supply of rare earths and battery materials. Renewables sit at just ~22%, held back by limited land, grid constraints, and slow permitting. Nuclear restarts are underway but still far below pre-Fukushima levels.
• AI is adding pressure. Datacenter capacity trails the US and China, and surging AI power demand is straining an already tight grid.
• Efforts to diversify are accelerating. JOGMEC is pushing to secure new metal sources and bilateral mineral deals.¹³ Circular-economy investments are ramping up. But Japan's structural import dependency leaves it deeply exposed to supply-chain shocks and great-power resource competition.
• In short: World-class technology, but critical resource lifelines run through rivals' hands.

China: Dominant today, durable tomorrow?

• China's current position in supply-chain control is unmatched. It is dominant in rare earth mining and refining—inputs critical to EVs, wind, defense, and AI. Its renewable buildout dwarfs all rivals: 217 GW of solar added in 2023 alone—more than the entire US installed base.¹⁴ Total renewables exceed 1,400 GW, moved efficiently by the world's most advanced ultra-high-voltage grid.
• AI and defense are scaling fast. China ranks second only to the US in compute capacity, with state-backed plans to expand further and develop domestic chips to offset US export controls. Defense spending is surging, funding rapid modernization across naval, missile, space, cyber, and nuclear domains.
• That said, energy dependence is real. China is the world's largest importer of oil, gas, and coal,¹⁵ with over half its crude coming from the Middle East. To mitigate this, China has pursued an aggressive energy diversification strategy: overland pipelines from Russia and Central Asia (including Power of Siberia 2), long-term LNG deals, the world's largest strategic petroleum reserve, and a major nuclear push—recently signing the Declaration to Triple Nuclear Energy by 2050.¹⁶
• Geopolitically, China is locking in upstream access. The Belt and Road Initiative secures minerals across Africa,¹⁷ Latin America, and Southeast Asia. Export controls on gallium, germanium, and rare earth processing show China is willing to weaponize supply chains in retaliation for Western tech restrictions.
• Structural cracks remain. An aging population and slowing growth squeeze fiscal room. Property-sector stress drags on demand. US-led tech restrictions are forcing costly chip import-substitution. And overcapacity in solar, batteries, and EVs, while an export advantage, is fueling trade friction with the EU and US.
• Bottom line: China's resource strategy is the most vertically integrated of any major power, but energy import dependency, demographic headwinds, and a hardening external environment all test its durability.

Market Themes

Our base case is that energy flows via the Strait of Hormuz stay largely halted for a few weeks before normalizing gradually. However, if they don't normalize, the market fallout will be non-linear. We remain moderately pro-risk into year-end but have turned tactically defensive, prioritizing hedges against stagflationary and recessionary tail risks. Over the longer term, portfolios should be positioned to secure exposure along critical supply chains, favoring companies and regions that control the sourcing, processing, and recycling of strategic minerals, while building structural allocations to energy transition infrastructure, defense-linked industrials, and resource circularity themes that will underpin the next economic order.

Base Case

Global growth stays resilient, AI momentum continues, and fiscal policy remains accommodative, but inflation normalizes slower than expected, central banks tilt more hawkish, and risks are plentiful.

Key Implications: We stay overweight equities medium-term but neutral short-term, favoring US large caps for their relative insulation from the current conflict, while expecting European and EM equities to rebound if hostilities end. Flexible bond strategies with dynamic duration, sector, and rates/credit allocation, may offer the best fixed income positioning, balancing near-term uncertainty with a longer-term pro-risk stance. Liquid alternatives earn their place as a decorrelator, particularly when traditional hedges break down.

Global Stagflation

The Middle East conflict persists, Hormuz stays partially closed, and energy prices grind higher and remain elevated—reigniting inflation, forcing central banks to resume hikes, and dragging global growth lower with sharp regional divergence as the US proves more resilient than energy-dependent Europe and emerging markets.

Key Implications: Traditional hedges lose effectiveness, making non-traditional diversifiers—such as trend-following strategies and income-oriented private assets—the preferred tools for inflation protection. Within core allocations, we would favor short-duration fixed income to reduce interest rate sensitivity and high-dividend equities for their defensive carry characteristics.

Global Recession

Energy prices surge into triple digits as the Strait of Hormuz faces severe and persistent disruption. Growth deteriorates markedly—outweighing the simultaneous rise in inflation. Faced with a demand destruction dynamic that poses a greater systemic risk than elevated prices, central banks pivot to rate cuts, prioritizing growth stabilization over inflation control.

Key Implications: Equities face broad-based selling pressure, but core fixed income stands out as a clear beneficiary, rallying as central banks cut rates and investors seek safe havens. Within equities, the playbook shifts decisively toward defensive, high dividend names —whose cash flow profiles benefit from falling discount rates and whose earnings prove more resilient in a slowdown. On the fixed income side, we would look to increase exposure to government bonds, which offer both capital appreciation potential and portfolio ballast as yields decline. Finally, alternatives earn a critical role: multi-strategy hedge funds provide tactical agility across dislocated markets, while gold serves as the ultimate hedge against geopolitical tail risk and currency debasement.

Energy Transition & Resource Circularity in Focus 

Level Setting

The energy transition is one of the largest structural investment themes of the decade, with global spending hitting $2.3tn in 2025, over 5x global datacenter capex.¹⁸ This trend extends beyond renewables: grid modernization, electrified transport, storage, and clean industry are all part of the buildout. Electrification bridges clean power capacity to genuine energy security, reducing reliance on volatile imported gas markets and offering a pathway to lower energy costs as governments increasingly focus on affordability and social costs. The transition also introduces a new vulnerability. Critical minerals like lithium, cobalt, nickel, and copper are essential to both batteries, solar, and wind, but also to defense systems, and supply is concentrated in a handful of countries. This is why circularity is emerging as an imperative: based on 2040 demand projections, primary mining alone cannot close the gap, making recycling or secondary supply necessary. Sustainability, in turn, is being recognized as a lens on long-term value creation, resource efficiency, and strategic resilience.

From Theme to Portfolio Implementation

Energy transition momentum is showing up in markets: clean energy equities have rebounded notably, e.g., the Bloomberg GS Clean Energy Index gaining 33% in 2025 vs MSCI World Energy Index returning 14.4%.¹⁹ While fundamental equity strategies can offer satellite exposure to the transition buildout, we believe core allocations require a benchmark-aware, risk-managed approach to avoid unintended tilts seen in earlier sustainable strategies. In fixed income, green bonds can act as a thematic vehicle, with energy and utilities representing 40% of the green bond end-use industry market share in 2025.²⁰ Our research shows diversification benefits with minimal impact on duration or yield,²¹ efficiently accessing the transition theme without compromising portfolio discipline.²²

The energy transition offers compelling opportunities across private markets, but capturing them demands a nuanced, asset-class-specific approach. In private equity, the middle and upper middle market stands out: we see a surging demand for mitigation, resilience and adaptation strategies delivered across a range of business models, to meet the demands of a generational rise in energy consumption and evolving environmental conditions. In infrastructure, a growing sustainable middle-market segment presents strong value creation potential with clear exit pathways to larger platforms. And in private credit, we see an increasing market demand for more bespoke, structured debt financing solutions to satisfy the significant capital need to build out clean energy infrastructure over the coming years.

Equities

SOLUTION

Mapping the supply chain

Equities offer a direct route to the structural value chains that underpin both economic competitiveness and national security—because listed sectors and industry groups cleanly mirror where governments and corporates are already deploying capital. Accelerating defense procurement cycles are funneling demand directly into dominant defense companies and specialist suppliers. Industrials and manufacturing are benefitting from supply chain reconfiguration and reshoring. Sovereign net-zero commitments and corporate power-purchase agreements are generating long-duration, contracted cash flows for utilities and grid specialists. Government-backed initiatives in the US, EU, and others are actively channeling capital toward alternative refining capacity for critical metals—opening investable pathways for non-Chinese producers to scale. AI hyperscalers’ investment concentrate demand into a set of cloud providers, chipmakers and specialized software vendors. For investors, we believe this means a modular equities playbook: tilt Materials/Energy for raw-supply exposure, add targeted Industrials/Chemicals for processing and domestic supply resilience, and use IT/semiconductor names for productivity and infrastructure layer that monetize those inputs.

Relatively cheap entry, long run upside

We believe valuations across major markets offer differentiated but attractive entry points. Many of the industrial and materials companies that form the backbone of physical supply chains trade at meaningful discounts to their own cyclical peaks. Meanwhile, the highest-quality IT and defense names command premium multiples, reflecting durable structural demand. The result is not a single-priced bet but a multi-bucket allocation opportunity spanning value, quality, and growth. This dispersion allows investors to blend near-term cyclical exposure with longer-duration structural return streams. Potential near-term opportunities include miners, industrial capex beneficiaries, and processing companies positioned for re-rating. Longer-term return streams may include utilities with contracted renewable revenues, defense companies with multi-year procurement schedules, and semiconductor equipment suppliers benefiting from sustained capex cycle. Together, we believe these layers create an investable, risk-managed pathway into the security, energy, and resource transition themes—capturing both the cyclical re-rating already underway and the compounding productivity gains that lie ahead.

Fixed Income

SOLUTION

Financing the EU energy transition

Europe’s renewables build-out for energy security creates an unambiguous structural financing requirement. The EU’s binding Renewable Energy Directive aiming at a share of renewable energy in the total EU energy mix of~42.5% by 2030,²³ with an aspirational top-up to 45%, sits against a 2024 renewables share of ~25.2%, implying a rapid acceleration in deployed capacity and large grid upgrades, while final energy demand estimate for 2030 (≈992.5 Mtoe) defines the scale of required generation and system investment.²⁴ To achieve this scale and speed, the European Commission’s Clean Energy Investment Strategy estimates roughly €660bn capital is required per year to 2030, rising to €695 billion between 2031 and 2040.²⁵ Bank funding and equities will de-risk projects but cannot supply the scale or long maturities needed; the net result is a persistent, multi-year capital funding gap that must be filled predominantly by long-dated capital-markets debt and blended-finance structures.

Green bonds: Yields with impact

Green bonds are the most scalable, tradable fixed-income instrument to capture that demand. The EU Green Bond Standard embeds taxonomy alignment, mandatory disclosure and external verification, materially reducing green-washing risk and improving investor comparability, which in turn deepens demand from pensions, insurers and benchmarked asset managers. Europe already dominates aligned green issuance and reporting, and labelled green paper now accounts for a meaningful and growing share of EU issuance, meaning fixed-income portfolios must treat green bonds as a structural allocation, not a satellite sleeve. Green bonds provide (1) duration and cash-flow match to long-lived assets, (2) tradable exposures for large institutional balance sheets, (3) a transparent channel for impact attribution, and (4) lower spread volatility in periods of major market events.

Private Assets

SOLUTION

The capex super-cycle

The capital required to modernize global infrastructure is accelerating. This is being driven by defense, energy, transportation, digital connectivity, and resource security all moving up national and corporate priority lists simultaneously. Estimates suggest cumulative infrastructure spending could reach $106 trillion through 2040, with transportation,²⁶ energy, and digital networks representing the largest funding needs and Asia accounting for the majority of global demand. This isn't just a bricks-and-steel story. Capital intensity is surging at the technology layer too. Consensus estimates hyperscaler AI capital expenditure to reach $660+ billion in 2026 alone, reflecting the sheer scale of investment now flowing into compute, datacenters, power infrastructure, and connectivity. These themes share a common trait: they demand long-duration, asset-heavy capital deployed across power networks, logistics corridors, digital infrastructure, and the critical mineral supply chains that enable all of them. In our view, that makes private assets central to the next phase of capital formation, directly linking private markets to the physical build-out behind the decade's defining secular trends.

Mind the allocation gap

Set against that backdrop, a critical asset-allocation question emerges: do public markets provide sufficient exposure to the sectors most directly tied to this build-out? An analysis of US gross value added (GVA) suggests they do not: Industrials and Materials account for 29.3% and 4.2% of GVA respectively versus 9.4% and 2.0% in the MSCI USA Index; by contrast, Information Technology stands at 33.1% of the MSCI USA Index against 5.3% of GVA in the real economy. The mismatch is stark. The real-economy sectors absorbing the bulk of infrastructure and resource capex are significantly underrepresented in public benchmarks, while technology which is already well-owned, commands outsized index weight relative to its GVA footprint. Both public and private capital will be needed to finance this build-out. But private markets are uniquely positioned to fill the gap where public indices offer thinner representation, particularly across industrial infrastructure, energy systems, critical minerals processing, and logistics networks.

¹ IEA (2025), Energy and AI, IEA, Paris https://www.iea.org/reports/energy-and-ai, Licence: CC BY 4.0.
² IEA (2026), Copper prices have hit record highs, but smelters face mounting strategic pressures, IEA, Paris https://www.iea.org/commentaries/copper-prices-have-hit-record-highs-but-smelters-face-mounting-strategic-pressures, Licence: CC BY 4.0.
³ IEA (2026), Copper prices have hit record highs, but smelters face mounting strategic pressures, IEA, Paris https://www.iea.org/commentaries/copper-prices-have-hit-record-highs-but-smelters-face-mounting-strategic-pressures, Licence: CC BY 4.0.
⁴ IEA (2025), Energy and AI, IEA, Paris https://www.iea.org/reports/energy-and-ai, Licence: CC BY 4.0.
⁵ “Launching the Genesis Mission.” The White House, November 24, 2025.
⁶ A US-led international initiative launched in December 2025 to secure and diversify supply chains for artificial intelligence and semiconductors. https://www.state.gov/pax-silica
⁷ Export-Import Bank of the United States, “Week in Review: Project Vault and the U.S. Strategic Critical Mineral Reserve,” press release, February 6, 2026.
⁸ European Parliamentary Research Service, ReArm Europe Plan/Readiness 2030, Briefing PE 769.566 (Brussels: European Parliament, April 2025).
⁹ Euronews, “One Europe, One Market: Can the EU Turn 27 Economies into One Powerhouse?” As of February 23, 2026.
¹⁰ European Commission, The Draghi Report on European Competitiveness, European Union. As of September 9, 2024.
¹¹ European Commission, Critical Raw Materials Act, European Unionhttps://single-market-economy.ec.europa.eu/sectors/raw-materials/areas-specific-interest/critical-raw-materials/critical-raw-materials-act_en
¹² Bloomberg, “Japan Ministry Aims for $13 Billion in Support for Chip Sector.” As of November 10, 2023.
¹³ Japan Organization for Metals and Energy Security (JOGMEC) is a corporation established with the goal of securing stable and affordable resources and energy.
¹⁴ International Energy Agency, Renewables 2024: Analysis and Forecast to 2030 (Paris: International Energy Agency). As of October 9, 2024.
¹⁵ U.S. Energy Information Administration, China Country Analysis. As of May 19, 2025.
¹⁶ World Nuclear News, “China and Brazil among New Signatories to Tripling Nuclear Goal.” As of March 10, 2026.
¹⁷ University of Cambridge Institute for Sustainability Leadership, China’s Belt and Road Initiative: Sustainability in the New Silk Road (Cambridge: CISL). As of 2022.
¹⁸ BloombergNEF, Energy Transition Investment Trends 2025, Published in January 2026. For scope of Data Centers data, this includes CapEx for companies that is in the top 20 of owners of live IT capacity and have 200 megawatts or more of IT capacity under construction according to BNEF’s Global Data Center Live IT Capacity Database. This is a global figure and is likely a lower bound as many large developers are privately held and do not report capex.
¹⁹ The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. BloombergNEF, Energy Transition Investment Trends 2025, Published in January 2026.
²⁰ Past performance does not predict future returns and does not guarantee future results, which may vary.
²¹ Bram Bos and Isobel Edwards, “How Green Bonds Can Strengthen Fixed Income Portfolio Diversification,” Goldman Sachs Asset Management. As of September 25, 2025. 
²² Diversification does not protect an investor from market risk and does not ensure a profit.
²³ European Commission, Renewable Energy Directive: Targets and Rules, European Union.
²⁴ European Environment Agency, Primary and Final Energy Consumption, European Union. 
²⁵ European Commission, “Commission Launches Strategy to Accelerate Clean Energy Investment.”
²⁶ McKinsey “The infrastructure moment" report. As of September 2025.