Earlier this year, equity markets were badly upset by macro events, when, in April, the US announced high tariffs on imports from other nations. Yet trade wars are not the only risk on the horizon. Below are four possible future scenarios, illustrating varied risks that could have negative consequences for equity markets.
Investors can manage such risks by increasing the diversification of their portfolios. Our global equity market neutral strategy has historically had low correlation to both equity and bond markets and so has been useful to investors as a diversifier. Resilient investing matters in today’s uncertain world.
Our investment process is not based on making macro or geopolitical forecasts. We believe it is very difficult to do so accurately. We offer the four scenarios below not as forecasts, but as illustrations of the kinds of events that can cause market turmoil. All four scenarios are hypothetical. They may or may not materialise, but they are prefaced by facts that should cause concern. Although we hope that none of these scenarios ever comes true, investors should be aware of these kinds of risks.
RISK 1. Oil supply choked
THE FACTS:
Following recent Israeli and US strikes on Iranian nuclear facilities, Iran has retaliated by missile and drone strikes on Israel, and a missile strike on the US Air Base at Al-Udeid in Qatar. On 22 June, the Iranian Parliament voted to close the Strait of Hormuz. The decision is pending approval by the Supreme National Security Council.
Located between Oman and Iran, the Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. It is a narrow waterway, approximately 21 miles wide at its narrowest point, through which around 20 million barrels of oil pass daily, about 20% of the world’s total oil consumption 1. The oil passing through the Strait comes from Saudi Arabia, Iraq, Kuwait, the UAE, Iran and Qatar, on tankers bound for China, India, Japan, South Korea, Singapore, and the United States. Iran has developed an array of military assets aimed at exerting influence over the Strait. They include thousands of naval mines, fast-attack boats, submarines, anti-ship missiles and drones.
The Strait of Hormuz: a critical chokepoint
POSSIBLE SCENARIO:
Iran closes the Strait of Hormuz. The choking of this critical artery disrupts world oil supplies. While alternative export routes exist—such as Saudi Arabia's East-West pipeline and the UAE's pipeline to the Fujairah port—these have limited capacity and cannot fully compensate for a complete closure of the Strait. In response to reduced supply, oil prices rise. Oil is the lifeblood of the global economy, fuelling cars, trucks, ships, and planes—and used to make plastics, synthetic fibres, solvents, detergents, and paints. It becomes more expensive to ship goods by truck, plane, or ship, and to produce oil-based goods. Businesses pass higher transport and production costs on to consumers. Inflation climbs worldwide. The US Federal Reserve (Fed) abandons plans to cut interest rates. Investors in equities, which had been expecting the Fed to cut interest rates (helping companies and so share prices) lose confidence, and equities fall.
RISK 2. Microchip supply disrupted
THE FACTS:
Microchips are another critical world resource. They underpin everything from computers and phones to cars, medical devices and industrial machinery. Most advanced semiconductor manufacturing is concentrated in East Asia—especially Taiwan and South Korea. Taiwan Semiconductor Manufacturing Company (TSMC) is estimated to produce 90 percent of the world’s most advanced computer chips 2. Major US firms such as Apple and Nvidia rely heavily on Taiwan for chip manufacturing, even if they design the chips domestically.
The CHIPS and Science Act, passed under President Biden in 2022, aims to bolster US domestic semiconductor manufacturing. In 2025, executive orders by President Trump reshaped the CHIPS Act to emphasise domestic production. The Trump administration has also tightened export controls to block the sale of advanced chipmaking equipment to Chinese firms. Although TSMC has opened a chip manufacturing site in Arizona, US technology remains highly dependent on international supply chains.
The semiconductor supply chain is global
POSSIBLE SCENARIO:
Tensions between the US and China escalate into a full-scale trade war, with technology at its centre. President Trump demands that all chips used in critical industries be “Made in America”. In response to Washington’s harsher export controls and domestic content requirements, China tightens audits, fines and new data localisation rules. It suspends licencing and slows customs clearance for semiconductor-related goods. TSMC, caught between conflicting political demands from Beijing and Washington, suspends some of its export shipments to avoid violating either country’s regulations.
Supply chain bottlenecks intensify. Delivery times for phones and car components get longer. Shares in TSMC, Apple, Nvidia and other technology companies fall. As tech stocks make up so much of the market capitalisation of US and global markets, broad indices decline. Stagflation—a combination of low economic growth and inflation—dominates as trade restrictions throttle global growth and supply shocks stoke higher prices.
RISK 3. King Dollar’s crown slips
THE FACTS:
The US dollar recently fell to its lowest level in three years against a basket of major currencies. Confidence in the dollar—the world’s primary reserve currency—has been eroded by a combination of domestic fiscal instability, unpredictable trade policy, and shifting global monetary alliances.
The US national debt has surged past $36.2 trillion, and on 16 May ratings agency Moody’s downgraded the US sovereign credit rating from Aaa to Aa1. Moody’s expects federal deficits to widen to nearly 9% of GDP by 2035, up from 6.4% in 2024, and projects that federal debt will reach 134% of GDP by 2035, compared to 98% in 2024 3.
The Republicans’ ‘One Big Beautiful Bill’ —a sweeping tax cut and spending package that was signed into law on 4 July—will add several trillion dollars to the US government’s long-term liabilities. Meanwhile, the Department of Government Efficiency (DOGE), previously led by Elon Musk, has delivered fewer spending cuts than promised, further undermining fiscal credibility. Compounding the problem, the administration’s on-again, off-again trade tariff war has damaged confidence and led some international investors to rethink the size of their exposure to US-dollar denominated assets.
At the same time, the BRICS+ bloc (Brazil, Russia, India, China, South Africa and other emerging economies), have launched a non-dollar trade settlement system and established the BRICS Monetary Fund 4.
POSSIBLE SCENARIO:
As fiscal pressure mounts, the US faces unplanned defence spending following a geopolitical flare up. Import tariffs, introduced in a bid to protect domestic industries, stoke inflation instead. The Fed is forced to keep interest rates higher for longer, despite slowing economic growth.
With tax revenues declining and debt servicing costs rising, annual interest payments on the national debt exceed $1.2 trillion. Amid growing concern, Moody’s issues a second downgrade, and S&P and Fitch follow suit.
Investor confidence falters. US Treasuries sell off, driving yields higher. Liquidity at Treasury auctions thins, as fewer investors are willing to buy US government bonds, making it harder for the government to borrow affordably. Foreign central banks, citing both fiscal deterioration and rising political instability, reduce their holdings of US government debt.
In the lead-up to the 2026 midterm elections, political polarisation intensifies. Violent protests erupt in major US cities. President Trump once again deploys the National Guard—as he did earlier in California—and makes headlines by stating his intent to seek a third term, despite constitutional limits. The spectre of institutional erosion adds to market anxiety.
As safe-haven demand shifts away from Treasuries, gold surges to new highs, and equity market volatility rises sharply.
Meanwhile, the BRICS+ trade settlement platform gains momentum. By late 2026, oil, natural gas, and key metals are increasingly priced and settled in Chinese yuan, Indian rupees, and BRICS Unit of Account (BUA) tokens. Global commodity trade through the BRICS system surpasses $2 trillion, gradually undermining demand for the US dollar in international transactions.
Ultimately, while the US remains the world’s largest economy and retains deep capital markets, the “exorbitant privilege” of near-universal dollar dependence is broken. A multipolar financial order emerges, with reserve holdings, commodity pricing, and capital flows increasingly diversified across blocs.
RISK 4. Global warming causes property crash
THE FACTS:
According to the World Meteorological Organization (WMO), the period 2025–2029 is likely to be the hottest five-year stretch on record. Sea levels and temperatures are both rising, with implications for millions living in low-lying coastal areas.
The Intergovernmental Panel on Climate Change (IPCC) projects that global sea levels are likely to rise by between 0.15 and 0.29 metres by 2050, depending on whether greenhouse gas emissions are very low or very high. The IPCC also warns: “Due to relative sea level rise, current 1-in-100 year extreme sea level events are projected to occur at least annually in more than half of all tide gauge locations by 2100 under all considered scenarios” 5.
A rise in sea level of one foot (about 0.3 metres) would significantly increase the frequency and severity of coastal flooding in the US, according to the National Oceanic and Atmospheric Administration (NOAA) 6.
A 2025 study found that New Orleans in the Mississippi Delta, in southern Louisiana, is at risk of catastrophic flooding due to accelerating sea levels. The risk is magnified by land subsidence 7.
In Miami, flooding has already increased due to sea-level rise. Sea levels around the Miami coast have been rising faster, according to Brian Mcnoldy, a senior research associate at the University of Miami's Rosenstiel School of Marine, Atmospheric, and Earth Science 8. While the sea level has risen one foot over about 80 years, the next foot is expected to be in only 30 years. The following foot after that could occur within just 10 years.
POSSIBLE SCENARIO:
Climate change is an escalating risk. Yet because global leaders tend to focus only on the next election cycle, measures are delayed or underfunded.
By the 2030s or 2040s, rising sea levels push parts of Miami, New Orleans, and Southeast Asia below water during storm surges and, later, seasonal high tides. Insurance companies stop issuing policies for high-risk properties. Without insurance, mortgages become difficult or impossible to obtain, as banks cannot take on loans for uninsured assets.
Mortgage-backed securities (MBS) (bundles of home loans sold to investors) see severe repricing. A “Climate MBS crisis” erupts, drawing parallels to the Great Financial Crisis (GFC) of 2008, which also began in the mortgage sector —though this time driven by physical climate risk rather than credit risk. Global central banks struggle to assess collateral quality. Property values in coastal areas fall sharply. The same scenario plays out with properties in arid and wildfire-prone areas. A broader financial crisis ensues. However, unlike 2008, the underlying cause cannot be resolved with a financial “bailout”, because it stems from now irreversible environmental changes. This ushers in a new era of climate-driven financial instability.
Resilient investing
We do not know whether any of the above risks will be realised. Perhaps none of them will, but investor concerns about them are enough to move markets. In uncertain times, it is important for investors to be well diversified. Blending traditional long-only equities with bonds in a portfolio is no longer enough, in our view. Investors should consider increasing diversification by including alternative assets such as market neutral equity, which have low correlation with traditional equities and bonds.
A market neutral equity strategy targets alpha (returns in excess of a cash benchmark), rather than relying on the direction of the market. By balancing long and short positions, it aims to deliver returns that are uncorrelated with market moves—offering potential resilience in both rising and falling environments. Stay safe out there.
Footnotes
1 Justine Barden, The US Energy Information Administration, 20 June 2025. The Strait of Hormuz is the world's most important oil transit chokepoint. Available at https://www.eia.gov/todayinenergy/detail.php?id=39932
2 Isabel Hilton, 5 October 2024. Taiwan Makes the Majority of the World’s Computer Chips. Now It’s Running Out of Electricity, Yale Environment 360 and Wired. Available at https://www.wired.com/story/taiwan-makes-the-majority-of-the-worlds-computer-chips-now-its-running-out-of-electricity/
3 Moody’s. 16 May 2025. Moody's Ratings downgrades United States ratings to Aa1 from Aaa; changes outlook to stable https://www.moodys.com/web/en/us/about-us/usrating.html
4 Mariel Ferragamo, Council on Foreign Relations, 26 June, 2025. What Is the BRICS Group and Why Is It Expanding? Available at https://www.cfr.org/backgrounder/what-brics-group-and-why-it-expanding
5 IPCC, Climate Change 2023. Available at https://www.ipcc.ch/report/ar6/syr/downloads/report/IPCC_AR6_SYR_SPM.pdf
6 Andrew Freedman, 16 Feb 2022, “US sea levels to rise by a foot through 2050, causing "profound" flooding”, Axios. Available at https://www.axios.com/2022/02/15/new-sea-level-rise-forecast-warns-increasing-flooding
7 Simone Fiaschi et al. 27 June 2025. “Vertical land motion in Greater New Orleans: Insights into underlying drivers and impact to flood protection infrastructure” Science Advances. Available at https://www.science.org/doi/10.1126/sciadv.adt5046
8 K. C. Sherman, 18 June 2024. ‘Sea levels are rising at a faster pace, parts of South Florida could be underwater by 2080’, CBS News, https://www.cbsnews.com/miami/news/sea-levels-rising-at-a-faster-pace-south-florida-trying-to-keep-up/
Jupiter Merian Global Equity Absolute Return Strategy risks
- Share Class Hedging Risk - The share class hedging process can cause the value of investments to fall due to market movements, rebalancing considerations and, in extreme circumstances, default by the counterparty providing the hedging contract.
- Currency risk - the Fund is denominated in USD and may use hedging techniques to try to reduce the effects of changes in the exchange rate between the currency of the underlying investments and the base currency of the Fund. These techniques may not eliminate all currency risk. The value of your shares may rise and fall as a result of exchange rate movements.
- Investment risk - whilst the Fund aims to deliver above zero performance irrespective of market conditions, there can be no guarantee this aim will be achieved. Furthermore the Fund may exceed its volatility limit. A capital loss of some or all of the amount invested may occur.
- Derivative risk - the Fund uses derivatives to generate returns and/or to reduce costs and the overall risk of the Fund. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment. Derivatives also involve counterparty risk where the institutions acting as counterparty to derivatives may not meet their contractual obligations.
- Company shares (i.e. equities) risk - the value of Company shares and similar investments may go down as well as up in response to the performance of individual companies and can be affected by daily stock market movements and general market conditions.
- Stock Connect risk - the Fund may invest in China A-Shares through the China-Hong Kong Stock Connect (“Stock Connect”). Stock Connect is governed by regulations which are untested and subject to change. Trading limitations and restrictions on foreign ownership may constrain the Fund's ability to pursue its investment strategy.
- Sustainability Article 8 - Investments are selected or excluded on both financial and non-financial criteria. The Fund's performance may differ from the broader market or other Funds that do not utilize ESG criteria when selecting investments.
For a more detailed explanation of risks, please refer to the "Risk Factors" section of the prospectus.
Il valore delle menti attive: il pensiero indipendente
Una caratteristica fondamentale dell’approccio di investimento di Jupiter è che evitiamo l’adozione di una view della casa, preferendo invece consentire ai nostri gestori specializzati di formulare le proprie opinioni sulla loro asset class. Di conseguenza, va notato che tutte le opinioni espresse, anche su questioni relative a considerazioni ambientali, sociali e di governance, sono quelle degli autori e possono differire dalle opinioni di altri professionisti degli investimenti Jupiter.
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