BCA shares its World War III asset allocation strategy

BCA Research, while assigning only a 5% probability to a major global conflict through 2030 due to China's current unreadiness for a bipolar world, has published an asset allocation strategy for investors concerned about such an event. The firm recommends commodities, neutral countries, and cryptocurrencies as key hedges, citing historical performance where commodities significantly outperformed equities and bonds during past world wars. They also note China's vulnerabilities in energy imports and trade, suggesting geographic hedges in regions like Latin America and the Gulf, while highlighting cryptocurrencies' proven resilience against capital controls.

Analysis

BCA Research assigns a low 5% probability to a major global conflict through 2030, citing China's current unreadiness for a bipolar world despite US-China tensions. However, the firm recommends an asset allocation strategy for concerned investors, advocating for commodities, neutral countries, and cryptocurrencies as primary hedges. This reflects a measured approach to geopolitical risk, balancing low probability with high potential impact.

Historical data from World Wars I and II reveals commodities significantly outperformed, followed by equities, while bonds performed worst. Specific sectors like Printing & Publishing (23.4% CAGR) and Entertainment (9.8% CAGR) also demonstrated robust growth during these periods. This historical precedent supports BCA's focus on tangible assets and resilient industries.

China's substantial energy import dependency, with 83% of oil consumed imported and 43% from the Middle East via the Strait of Hormuz, presents a critical vulnerability. BCA suggests geographic hedges in Latin America, due to its commodity exposure, and Gulf countries, for their neutrality. Cryptocurrencies also offer a hedge, having demonstrated effectiveness against capital controls with over $4 billion in Iran flows in 2024.

Key Decisions for Investors

• Consider strategic allocation to commodities, potentially through broad-based funds or specific energy/agricultural exposures, given their historical outperformance during major conflicts.
• Evaluate investments in companies or regions identified as "neutral" or having strong commodity exposure, such as Latin American markets, as potential geographic hedges against geopolitical instability.
• Monitor the evolving geopolitical landscape, particularly China's energy self-sufficiency and Taiwan's status, as these are identified as key triggers for potential conflict.
• Assess the role of cryptocurrencies as a potential hedge against capital controls and traditional financial system disruptions, noting their demonstrated utility in specific geopolitical contexts.