There are fewer super funds, and associations that represent them, than ever before. But multiple layers of industry representation working at cross-purposes means that true unity has remained elusive, according to the Financial Services Council.
The world’s largest sovereign wealth fund just made its largest return ever. But the probability of extreme market events has “arguably risen”, and it’s carrying out stress tests for a more uncertain future.
The black swans that could darken skies in 2025
When making predictions for the year ahead, it’s important to consider not just the upside and downside scenarios, but the outside possibilities that could throw everything into disarray.
To that end, New York Life Investments (NYLI) has taken upon itself the difficult, near impossible task of trying to spot the high-impact, unpredictable events that could disrupt investor consensus in 2025 – the black swans.
One of NYLI’s higher likelihood scenarios is damage – accidental or deliberate – to the network of 400 undersea cables that handle 95 per cent of the world’s internet traffic and $10 trillion in daily financial transactions. It’s higher likelihood because it’s already happened – back in November, Russia was suspected of severing two Baltic Sea cables, while damage to a cable off Egypt in 2008 disrupted internet services through the Middle East and India.
But the consequences of a severed cable “extend far beyond temporary internet slowdowns”. Regional connectivity outages could disrupt services like air travel, as well as financial market activity. Targeted attacks on key locations – like the cables connecting China and Taiwan – would send ripples through neighbouring regions. In the US, activity is concentrated in a handful of coastal locations in New York, Oregon, California and Florida. And with only 60 repair ships globally, disruptions could take months to resolve, “escalating economic fallout and geopolitical tensions”.
“Companies with robust, diversified communication networks and geopolitically resilient infrastructure are likely to attract greater interest as quality investments,” the report says. “Similarly, satellite and telecommunications firms may benefit from a growing emphasis on cable-independent connectivity solutions.
“Conversely, sectors reliant on real-time internet connectivity, such as aviation, could face operational risks, which may weigh on valuations. Heightened demand for cybersecurity and physical infrastructure defence will likely create opportunities for companies specializing in these areas. As the risk of disruption becomes clearer, markets may price in higher geopolitical risk premiums.”
A medium probability scenario – and a rare “good” black swan – stems from scientists turning the power of AI towards some of the world’s longest-running health problems. Brazil is a hotspot for both dengue fever and dengue fever research; the economic cost of dengue fever in Latin America exceeds US$3 billion annually, with Brazil accounting for $1.4 billion of that. With the assistance of AlphaFold, an artificial intelligence that performs predictions of protein structures, a treatment is within reach.
“Curing dengue fever has been challenging due to the complexity of the disease, which has four variants. Now that AlphaFold is available to researchers, they could use it to predict structures for less-studied variants, filling in gaps where experimental data is unavailable. Brazil wouldn’t only benefit from a reduction in infections, its well-established pharmaceutical manufacturing sector would also be able to produce and export these new drugs.”
A dengue fever treatment would be a major development in public health, but would also be a massive boon to whichever country created it – à la the development of diabetes and obesity treatments by Danish companies, which have likely contributed most – if not all – of the 3.6 per cent growth in Danish GDP since 2021.
“It’s hard to predict where and how a cure for a disease will be discovered. While dengue fever seems prime for new treatments with the advent of AI, the real takeaway for investors is that they should keep their eye on the pharmaceutical and biotechnology sectors.”
Towards the lower end of the probabilities, the harsh reality of climate change could pop the U.S housing bubble. House prices in climate-vulnerable areas are inflated, with 39 million homes in the US facing insurance rates that don’t match their climate risk, according to the First Street Foundation – creating a bubble that could burst as severe devaluations hit high-risk regions. If federal agencies updated their flood and disaster maps to more accurately reflect climate risk, with a requirement that the information be incorporated into appraisals and insurance assessments, that bubble might burst even faster.
“A climate-driven housing market correction could have far-reaching consequences. Mortgage providers who are heavily exposed to at-risk properties may face rising default rates, straining credit markets and increasing financial instability,” the report says.
“A sharp drop in home values could erode household wealth, reducing consumer spending and potentially tipping the economy into a recession. At the same time, demand may shift toward “climate-safe” regions, inflating property values and potentially creating new housing bubbles. Investors should focus on resilient housing markets and opportunities in climate-adaptation industries.”
Other possibilities NYLI outlines include Denmark clamping down on global oil shipping by imposing restrictions on “ghost ships” – the aging, uninsured tankers with opaque ownership used by Russia to circumvent sanctions on its oil imports; China losing its normal trade relations status with the US; and Trump withdrawing the 5th Fleet from the Middle East.
“Trump’s transactional governance style and focus on defence cost sharing could point to a reconsideration of the 5th Fleet’s Middle East presence, potentially as a continuation of the Abraham Accords which normalized Israel-Arab relations,” the report says.
“A 5th Fleet withdrawal would likely inject volatility into oil markets, as traders price in heightened risk to supply routes. While such a move may be more likely used as a negotiating tactic than a fully implemented policy, its announcement alone could spark temporary price swings. If enacted, oil markets could face prolonged volatility, particularly if attacks or blockages disrupt supply.”
