Introduction
The world is currently facing unprecedented levels of turbulence, both in the global economy and geopolitical landscape. This new global disorder is driven by a wide array of factors, prompting investors and business leaders to question the best ways to safeguard themselves against such uncertainty.
Factors Contributing to Global Uncertainty
Several factors contribute to the deteriorating GDP forecasts and increased volatility, including deglobalization exacerbated by tariffs, rising inflation risks, and technological competition between the United States and China. Meanwhile, geopolitical uncertainty grows due to deepening regional rifts, the reemergence of market blocs among emerging economies like the BRICS+, and ongoing hot conflicts. Social uncertainty, fueled by record levels of migration and displacement, is driving populism and distrust in advanced economies’ governments.
Historical Market Volatility
While historical market volatility has been high, it hasn’t reached the expected levels. For instance, the VIX (a volatility index) remained between 15 and 20 points in early 2025, compared to 12-14 points during the same period in the previous year. Similarly, the MOVE (Merrill Lynch Estimated Volatility of Interest Rates) remained elevated at around 100 points since February 2022, compared to 50-80 points in previous years. However, following Trump’s “Liberation Day” tariffs, the VIX surged above 40 and the MOVE above 130.
Levels of Risk Coverage
In the face of such uncertainty, there are three ways to approach risk coverage:
Level One Coverage
This involves conventional methods investors use when financial markets function normally and the rule of law is not in question. These options assume a stable relationship (the “base”) between financial markets and real assets. Financial contracts will settle reliably, and hedges will protect investors as intended.
- Buying put options on the S&P 500 or protecting with CDX (Exchange Default Swap) safeguards variable and fixed-income investments, respectively, as these contracts will continue generating dividends even after a crisis.
- In these cases, capital is covered as the proper functioning of financial markets and the rule of law ensure sufficient liquidity and transparency.
Level Two Coverage
This is used when financial markets fail to balance, leaving investors exposed despite having a financial contract. This scenario assumes a closed system where the failure of level one financial hedges is not isolated or localized but universal.
These situations are rare in a globalized world, as even if a national stock exchange fails, globally traded assets like gold or oil contracts could still be liquidated elsewhere.
For example, during the 2008 global financial crisis, governments intervened to ensure contract liquidation, effectively stabilizing markets. Although the relationship between financial and real assets initially broke down, government intervention was sufficient to restore market stability. As long as the rule of law remains intact, property rights, contracts, counterparty agreements, and bill/rent payments remain enforceable.
Level Three Coverage
In these scenarios, not only do financial markets collapse, but the rule of law also breaks down, leaving investors exposed and without coverage (as level one and two hedges lose effectiveness).
These situations are more common in relatively underdeveloped emerging markets with weak financial and legal systems.
The only protection in such cases is owning physical, tangible, and portable assets like gold coins, stamps, or artwork, or controlling resources such as land, water, or energy.
If the rule of law fails, physical possession of an asset may prevail over legal title, implying that owners must take additional measures to protect their assets.
Conclusion: The Importance of Institutional Infrastructure
The greatest weakness in any system is its underlying institutional infrastructure, as its failure brings down everything else. In today’s world, investors cannot rely solely on level one hedges. They must consider what level of protection is needed for level two and three scenarios when the relationship between financial and physical assets becomes less stable than anticipated.
About the Author
Dambisa Moyo, an international economist, is the author of four New York Times bestselling books, including “Edge of Chaos: Why Democracy Must Be Renewed to Save Globalization and Conquer the Seven Tests of Time” (Basic Books, 2018). © Project Syndicate 1995–2025.
