Higher. Longer. Pricier.
The global economy and global financial markets are in a structural regime shift. Interest rates are rising in response not only to inflation risks but also to growing doubts about the long-term sustainability of public finances. High budget deficits and rising debt lead investors to demand higher risk premia for long-term capital. Capital is thus becoming structurally more expensive.
Higher energy prices reinforce this pressure and fuel the debate about a potential stagflationary environment. The combination of elevated price levels and waning growth dynamics remains a relevant risk scenario but has not yet materialized in macroeconomic data. On the contrary: the global economy is proving very resilient, particularly in the United States, where consumption, the labor market, and corporate earnings continue to exceed many market participants' expectations. This dynamic stabilizes global growth and reduces the likelihood of a broad cyclical slowdown.
Against this backdrop, equity markets are reaching new highs despite higher interest rates and rising risk premiums. This development is particularly pronounced in the technology sector, especially in the areas of artificial intelligence (AI) and semiconductors, driven by strong earnings growth and a structural investment cycle.
"Higher. Longer. Pricier." therefore has a more differentiated meaning for equity markets than for interest rates and inflation. Higher prices do not necessarily equate to more expensive valuations, as long as they are fundamentally supported by earnings growth. "Longer" describes the overarching growth engine: investments in AI, which are likely to be structural and long-term in nature.
This is precisely where the central tension lies: the necessary investments in infrastructure, energy, defense, and technology are up against restrictive financing costs. Capital is becoming more expensive at a time when it is structurally needed. For investors, this environment is less a reason for tactical reactions than for strategic positioning. What remains decisive is disciplined capital allocation that leverages structural growth drivers and consistently puts real assets with stable cash flows, solid balance sheet quality, and high productivity at the core.
Enjoy the read.
Best regards,
Gzim Hasani, CEO
Bekim Laski, CFA, Chief Investment Officer
