Chips Will Depend on State Spending, Not Just Innovation
In 2026, the semiconductor industry is no longer just about technology. It has become a contest of state spending. China is preparing up to $70 billion in chip-sector incentives, building on more than $150 billion invested since 2014. South Korea has unveiled a $518 billion plan to strengthen its semiconductor sector. The US CHIPS Act allocated $52 billion. Taiwan currently blocks TSMC from producing its most advanced chips abroad, keeping cutting-edge 3 nanometre production on the island.
What looks like industrial policy is instead economic warfare conducted through subsidies, with each nation racing to secure technological independence. The spending translates into progress, but uneven progress. China’s SMIC has achieved 7 nanometre production and is developing 5 nanometre capabilities expected in 2026, but the economics remain brutal. SMIC’s 5 nanometre yields run at roughly a third of TSMC’s rate, with costs 40–50% higher.
Without access to extreme ultraviolet lithography machines, Chinese manufacturers rely on older deep ultraviolet equipment with multi-patterning techniques that consume more power and cost more to operate. China compensates through scale, building massive chip clusters powered by cheap energy from nuclear and renewable sources, alongside government subsidies that cut electricity bills for data centres using domestic chips.
Domestic chips now power 30–40% of China’s AI compute, up from less than 10% in 2024. For countries without the fiscal capacity to match this spending, access to advanced chips becomes increasingly uncertain. India is pushing ahead with Tata Electronics and Taiwan’s Powerchip, building facilities targeting 50,000 wafers per month by late 2026, but these focus on mature 28–110 nanometre chips for cars and consumer electronics, not the cutting-edge nodes where the real competition plays out.
Smaller economies have no leverage to secure allocation during shortages and lack the resources to build domestic alternatives. The semiconductor industry is splitting into three tiers: nations that can afford to compete at the frontier, nations that can build mature capacity, and nations that depend entirely on others. The technological future belongs not to whoever innovates fastest, but to whoever can subsidise longest.
The Dollar’s Dominance Is Eroding at the Margins
In 2026, the dollar remains the world's dominant reserve currency, but its share continues to erode. The dollar's portion of global foreign exchange reserves has fallen from 73% in 2001 to around 56% at present. Central banks have begun diversifying their reserves more actively, boosting holdings of gold and non-dollar currencies as geopolitical uncertainty and financial risk rise. Trade is increasingly being settled outside the dollar. BRICS economies, which account for nearly 40% of global GDP on a PPP basis, are actively building alternatives. By 2023, about a fifth of global oil trade was already conducted in non-dollar currencies, and that share continues to rise through bilateral and regional arrangements.
This shift has accelerated not despite US power, but because of how economic tools have increasingly been used unilaterally. Sanctions regimes expanded, export controls tightened, tariffs resurfaced, and geopolitical uncertainty rose. Freezing Russian central bank assets and restricting China's access to advanced technologies sent a clear signal that financial and trade systems could be weaponised. The dollar became a strategic tool, and countries took note. China has significantly reduced its holdings of US Treasuries since 2022. India now operates over 150 Special Rupee Vostro Accounts, enabling trade settlement in rupees without dollar conversion after easing rules in 2025. Russia and India are increasingly settling trade in rupees and dirhams rather than dollars.
For smaller nations, the choices are narrowing. Remaining heavily dollar-dependent means exposure to sanctions risk and US policy decisions. Moving away risks friction with Western partners and greater reliance on alternative systems, often centred on China. India has been cautious about proposals for a common BRICS currency, emphasising the continued role of the dollar in providing stability and supporting its trade ties with the US.
The dollar is far from collapsing. But for a growing set of countries, its dominance now rests less on convenience and more on constraint. As trust erodes, the system that once made global trade fluid is slowly fracturing along the same geopolitical lines reshaping the global order.
Money Now Comes With a Passport
In 2026, sovereign wealth funds are deploying more than $14 trillion with a dual mandate. Returns still matter, but so does geopolitical influence. Middle Eastern funds accounted for 40% of global deal activity in 2025 and are investing across AI startups, infrastructure, energy and technology. Abu Dhabi's Mubadala invested $1.5 billion in OpenAI, while Saudi Arabia's Public Investment Fund took stakes in Uber, Lucid Motors, and Newcastle United FC. These are not passive investors. They often take board seats, influence strategy and seek alignment with national priorities. In an increasing share of strategic sectors, capital is flowing not just where markets signal opportunity, but where governments see long-term advantage.
This reflects a shift from investment as wealth building to investment as statecraft. Sovereign wealth funds are buying ports, data centres, chip manufacturing capacity and energy assets. In India, Abu Dhabi's ADIA and Singapore's GIC have invested billions in Reliance Jio and renewable energy infrastructure, while Saudi PIF explored partnerships in green hydrogen projects. They are investing in tech companies with an eye on access, supply chains and influence, not just financial return. For recipient countries and firms, the capital increasingly comes with expectations. Strategic sectors are becoming exposed to foreign state interests. Ownership is becoming a channel through which political goals shape commercial decisions.
For countries and companies in need of capital, the choices are narrowing. Accepting sovereign funding often means accepting some degree of foreign influence. Rejecting it can mean losing access to the largest and most patient pools of capital available. Western pension funds and private equity operate on shorter timelines and stricter return constraints. Sovereign wealth funds can wait longer, absorb risk and pursue objectives beyond profit. As more capital serves political goals rather than just financial ones, investment decisions are increasingly shaped by state priorities rather than market signals.
Climate Risk Is Reshaping Housing Market
In 2026, insurance markets in high-risk areas are breaking down. Insurers are pulling out of flood zones, wildfire regions and hurricane-prone coasts. Where coverage still exists, premiums are rising sharply. In the US, roughly 1 out of 13 homeowners now lives without insurance coverage, exposing an estimated $1.6 trillion worth of property. In the UK, at least 1 out of 6 people currently live with flood risk, and projected damages could rise 27% by the 2050s. Over the past decade, climate change has accounted for more than 30% of insured natural disaster losses.
This insurance crisis is not just about individual coverage. It threatens the entire system built on property as collateral. Banks rely on insured homes to back mortgages. Without insurance, that collateral loses value rapidly. By 2026, the implications will become visible. India faces this acutely, with over 90% of exposure to natural disasters remaining uninsured and property insurance penetration at barely a tenth of the already low 1% non-life insurance penetration. The country ranks sixth globally in climate vulnerability, with 80,000 lives lost and $170 billion in damages between 1995 and 2024.
The climate-induced destruction in India shows a disturbing trend. The 2005 Mumbai flood cost insurers around ₹2,250 crore (≈$500 million at 2005 rates). Catastrophe modelling suggests the same event today would cost closer to ₹20,000 crore (≈$2.3 billion), once inflation and urban expansion are factored in. Yet insured losses typically cover only a fraction of total damage. During the 2013 north India floods, total losses were estimated at around ₹9,000 crore (≈$1.5 billion at 2013 rates), but only ₹3,800 crore (≈$633 million) was insured. India's government is exploring parametric insurance schemes where payouts are triggered automatically by rainfall or temperature thresholds, but trust remains low and adoption is slow.
For average homeowners in vulnerable areas, the largest asset they own is gradually becoming a liability. Wealthier buyers in lower-risk zones are better able to hold on to property values. Those in flood plains or fire-prone regions watch equity erode. Over time, climate risk maps are resembling modern versions of redlining, with the most exposed communities bearing the greatest losses. Property ownership, long treated as the foundation of middle-class security, is quietly splitting into winners and losers based on geography and climate exposure.
Debt Will Dictate Who Holds Power
In 2026, governments enter the year carrying historically high debt and running large deficits. Europe faces record bond supply of around €1,450 billion, with Germany contributing roughly €360 billion, much of it linked to defence spending. The US deficit is projected at 6.7%, with interest payments already exceeding defence budgets. Markets continue to function, bonds still sell, and economies avoid an outright crisis. By standard measures, the system looks stable.
But that stability masks a shift in who controls capital. Fiscal policy is increasingly displacing monetary policy as the primary force shaping markets. Central banks find themselves constrained by debt sustainability concerns rather than purely economic objectives. Governments are becoming the largest borrowers and spenders, directing capital towards defence, infrastructure and politically chosen industries. Defence contractors, infrastructure firms and favoured sectors sit closest to government spending.
India illustrates this clearly. In 2025-26, the government allocated ₹11.21 lakh crore (≈$128.6 billion) for capital expenditure, roughly 3.1% of GDP. Defence received ₹6.81 lakh crore (≈$78.2 billion), railways ₹2.65 lakh crore (≈$30.4 billion), and road transport ₹2.88 lakh crore (≈$33.1 billion). The centre is also providing ₹1.5 lakh crore (≈$17.2 billion) in interest-free loans to states for infrastructure, steering where capital flows regardless of market signals. Those positioned near government spending gain leverage. Those relying on independent central banks or market signals find their tools matter less.
For smaller economies without fiscal space, for bond investors facing volatility, and for anyone depending on market-driven allocation, the environment is changing. Borrowing costs are rising unevenly. Capital is flowing more towards state priorities than returns alone. India is targeting a fiscal deficit of 4.4% of GDP in 2025-26, down from 4.8% the previous year, while interest payments already account for 25% of total expenditure and 37% of revenue receipts. The government aims to reduce outstanding liabilities to around 50% of GDP by 2031, balancing fiscal discipline with heavy spending on infrastructure and strategic sectors. Emerging markets with stronger fundamentals, like India, may gain some relative advantage as investors reassess developed-market debt, but most face higher costs and fewer options. As fiscal dominance deepens, capital allocation becomes less about price discovery and more about political direction.
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Five Trends That Could Shape 2026
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Chips Will Depend on State Spending, Not Just Innovation
In 2026, the semiconductor industry is no longer just about technology. It has become a contest of state spending. China is preparing up to $70 billion in chip-sector incentives, building on more than $150 billion invested since 2014. South Korea has unveiled a $518 billion plan to strengthen its semiconductor sector. The US CHIPS Act allocated $52 billion. Taiwan currently blocks TSMC from producing its most advanced chips abroad, keeping cutting-edge 3 nanometre production on the island.What looks like industrial policy is instead economic warfare conducted through subsidies, with each nation racing to secure technological independence. The spending translates into progress, but uneven progress. China’s SMIC has achieved 7 nanometre production and is developing 5 nanometre capabilities expected in 2026, but the economics remain brutal. SMIC’s 5 nanometre yields run at roughly a third of TSMC’s rate, with costs 40–50% higher.
Without access to extreme ultraviolet lithography machines, Chinese manufacturers rely on older deep ultraviolet equipment with multi-patterning techniques that consume more power and cost more to operate. China compensates through scale, building massive chip clusters powered by cheap energy from nuclear and renewable sources, alongside government subsidies that cut electricity bills for data centres using domestic chips.
Domestic chips now power 30–40% of China’s AI compute, up from less than 10% in 2024. For countries without the fiscal capacity to match this spending, access to advanced chips becomes increasingly uncertain. India is pushing ahead with Tata Electronics and Taiwan’s Powerchip, building facilities targeting 50,000 wafers per month by late 2026, but these focus on mature 28–110 nanometre chips for cars and consumer electronics, not the cutting-edge nodes where the real competition plays out.
Smaller economies have no leverage to secure allocation during shortages and lack the resources to build domestic alternatives. The semiconductor industry is splitting into three tiers: nations that can afford to compete at the frontier, nations that can build mature capacity, and nations that depend entirely on others. The technological future belongs not to whoever innovates fastest, but to whoever can subsidise longest.
The Dollar’s Dominance Is Eroding at the Margins
In 2026, the dollar remains the world's dominant reserve currency, but its share continues to erode. The dollar's portion of global foreign exchange reserves has fallen from 73% in 2001 to around 56% at present. Central banks have begun diversifying their reserves more actively, boosting holdings of gold and non-dollar currencies as geopolitical uncertainty and financial risk rise. Trade is increasingly being settled outside the dollar. BRICS economies, which account for nearly 40% of global GDP on a PPP basis, are actively building alternatives. By 2023, about a fifth of global oil trade was already conducted in non-dollar currencies, and that share continues to rise through bilateral and regional arrangements.This shift has accelerated not despite US power, but because of how economic tools have increasingly been used unilaterally. Sanctions regimes expanded, export controls tightened, tariffs resurfaced, and geopolitical uncertainty rose. Freezing Russian central bank assets and restricting China's access to advanced technologies sent a clear signal that financial and trade systems could be weaponised. The dollar became a strategic tool, and countries took note. China has significantly reduced its holdings of US Treasuries since 2022. India now operates over 150 Special Rupee Vostro Accounts, enabling trade settlement in rupees without dollar conversion after easing rules in 2025. Russia and India are increasingly settling trade in rupees and dirhams rather than dollars.
For smaller nations, the choices are narrowing. Remaining heavily dollar-dependent means exposure to sanctions risk and US policy decisions. Moving away risks friction with Western partners and greater reliance on alternative systems, often centred on China. India has been cautious about proposals for a common BRICS currency, emphasising the continued role of the dollar in providing stability and supporting its trade ties with the US.
The dollar is far from collapsing. But for a growing set of countries, its dominance now rests less on convenience and more on constraint. As trust erodes, the system that once made global trade fluid is slowly fracturing along the same geopolitical lines reshaping the global order.
Money Now Comes With a Passport
In 2026, sovereign wealth funds are deploying more than $14 trillion with a dual mandate. Returns still matter, but so does geopolitical influence. Middle Eastern funds accounted for 40% of global deal activity in 2025 and are investing across AI startups, infrastructure, energy and technology. Abu Dhabi's Mubadala invested $1.5 billion in OpenAI, while Saudi Arabia's Public Investment Fund took stakes in Uber, Lucid Motors, and Newcastle United FC. These are not passive investors. They often take board seats, influence strategy and seek alignment with national priorities. In an increasing share of strategic sectors, capital is flowing not just where markets signal opportunity, but where governments see long-term advantage.This reflects a shift from investment as wealth building to investment as statecraft. Sovereign wealth funds are buying ports, data centres, chip manufacturing capacity and energy assets. In India, Abu Dhabi's ADIA and Singapore's GIC have invested billions in Reliance Jio and renewable energy infrastructure, while Saudi PIF explored partnerships in green hydrogen projects. They are investing in tech companies with an eye on access, supply chains and influence, not just financial return. For recipient countries and firms, the capital increasingly comes with expectations. Strategic sectors are becoming exposed to foreign state interests. Ownership is becoming a channel through which political goals shape commercial decisions.
For countries and companies in need of capital, the choices are narrowing. Accepting sovereign funding often means accepting some degree of foreign influence. Rejecting it can mean losing access to the largest and most patient pools of capital available. Western pension funds and private equity operate on shorter timelines and stricter return constraints. Sovereign wealth funds can wait longer, absorb risk and pursue objectives beyond profit. As more capital serves political goals rather than just financial ones, investment decisions are increasingly shaped by state priorities rather than market signals.
Climate Risk Is Reshaping Housing Market
In 2026, insurance markets in high-risk areas are breaking down. Insurers are pulling out of flood zones, wildfire regions and hurricane-prone coasts. Where coverage still exists, premiums are rising sharply. In the US, roughly 1 out of 13 homeowners now lives without insurance coverage, exposing an estimated $1.6 trillion worth of property. In the UK, at least 1 out of 6 people currently live with flood risk, and projected damages could rise 27% by the 2050s. Over the past decade, climate change has accounted for more than 30% of insured natural disaster losses.This insurance crisis is not just about individual coverage. It threatens the entire system built on property as collateral. Banks rely on insured homes to back mortgages. Without insurance, that collateral loses value rapidly. By 2026, the implications will become visible. India faces this acutely, with over 90% of exposure to natural disasters remaining uninsured and property insurance penetration at barely a tenth of the already low 1% non-life insurance penetration. The country ranks sixth globally in climate vulnerability, with 80,000 lives lost and $170 billion in damages between 1995 and 2024.
The climate-induced destruction in India shows a disturbing trend. The 2005 Mumbai flood cost insurers around ₹2,250 crore (≈$500 million at 2005 rates). Catastrophe modelling suggests the same event today would cost closer to ₹20,000 crore (≈$2.3 billion), once inflation and urban expansion are factored in. Yet insured losses typically cover only a fraction of total damage. During the 2013 north India floods, total losses were estimated at around ₹9,000 crore (≈$1.5 billion at 2013 rates), but only ₹3,800 crore (≈$633 million) was insured. India's government is exploring parametric insurance schemes where payouts are triggered automatically by rainfall or temperature thresholds, but trust remains low and adoption is slow.
For average homeowners in vulnerable areas, the largest asset they own is gradually becoming a liability. Wealthier buyers in lower-risk zones are better able to hold on to property values. Those in flood plains or fire-prone regions watch equity erode. Over time, climate risk maps are resembling modern versions of redlining, with the most exposed communities bearing the greatest losses. Property ownership, long treated as the foundation of middle-class security, is quietly splitting into winners and losers based on geography and climate exposure.
Debt Will Dictate Who Holds Power
In 2026, governments enter the year carrying historically high debt and running large deficits. Europe faces record bond supply of around €1,450 billion, with Germany contributing roughly €360 billion, much of it linked to defence spending. The US deficit is projected at 6.7%, with interest payments already exceeding defence budgets. Markets continue to function, bonds still sell, and economies avoid an outright crisis. By standard measures, the system looks stable.But that stability masks a shift in who controls capital. Fiscal policy is increasingly displacing monetary policy as the primary force shaping markets. Central banks find themselves constrained by debt sustainability concerns rather than purely economic objectives. Governments are becoming the largest borrowers and spenders, directing capital towards defence, infrastructure and politically chosen industries. Defence contractors, infrastructure firms and favoured sectors sit closest to government spending.
India illustrates this clearly. In 2025-26, the government allocated ₹11.21 lakh crore (≈$128.6 billion) for capital expenditure, roughly 3.1% of GDP. Defence received ₹6.81 lakh crore (≈$78.2 billion), railways ₹2.65 lakh crore (≈$30.4 billion), and road transport ₹2.88 lakh crore (≈$33.1 billion). The centre is also providing ₹1.5 lakh crore (≈$17.2 billion) in interest-free loans to states for infrastructure, steering where capital flows regardless of market signals. Those positioned near government spending gain leverage. Those relying on independent central banks or market signals find their tools matter less.
For smaller economies without fiscal space, for bond investors facing volatility, and for anyone depending on market-driven allocation, the environment is changing. Borrowing costs are rising unevenly. Capital is flowing more towards state priorities than returns alone. India is targeting a fiscal deficit of 4.4% of GDP in 2025-26, down from 4.8% the previous year, while interest payments already account for 25% of total expenditure and 37% of revenue receipts. The government aims to reduce outstanding liabilities to around 50% of GDP by 2031, balancing fiscal discipline with heavy spending on infrastructure and strategic sectors. Emerging markets with stronger fundamentals, like India, may gain some relative advantage as investors reassess developed-market debt, but most face higher costs and fewer options. As fiscal dominance deepens, capital allocation becomes less about price discovery and more about political direction.
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