Separating true issues from the noise

Adriaan Pask, CIO at PSG Wealth, considers the major areas of concern in a volatile global investment landscape – and how investors should approach them.

With global economic shifts unfolding rapidly, investors often find it difficult to distinguish what truly matters from the noise. But, stepping back and grouping broader themes into the key areas most likely to shape long-term outcomes can be a helpful way to identify risk areas that warrant closer attention.

Take tariffs as an example. Important but cyclical—introduced under Trump, rolled back by Biden, now resurfacing. In contrast, three broader areas carry longer, more impactful cycles and greater risks, making them the likeliest source of any future crisis.

1. Big tech CapEx cycle echoes the dotcom bubble

While the Magnificent Seven (Mag Seven) tech stocks grab most of the attention, the bigger risk is how much they are investing in projects. Their spending is peaking and has transformed these businesses, creating short-term risks. For example, in 2014 the Mag Seven spent a combined $23 billion on projects like data centers and infrastructure. Meta alone plans to spend $65 billion next year, with analysts forecasting the group will invest around $300 billion in total—half of their $600 billion in profits.

Capital Expenditure (CapEx) is typically spent off the balance sheet and depreciated over time, affecting free cash flow rather than headline earnings. But when spending is too high, multiple layers of depreciation build up, eventually becoming a major headwind for profits. Companies must be confident that their investments will deliver equivalent returns or growth.

Originally, these companies were capital-light with strong margins. Today, they are capital-heavy, which erodes margins over time. High levels of CapEx are not unprecedented: during the dotcom bubble, companies like Cisco spent heavily on capital projects and faced similar challenges.

2. Increase in speculative investor behaviour could exacerbate broader risks

If a crisis is going to emerge, speculative investor behaviour is where it is most likely to come from. Correlated with issues in the US fiscal strategy, we are seeing abundant capital, relatively loose financial conditions, and a large amount of money in circulation—all of which create the potential for instability.

Pursuant to this, there are lots of speculative products being launched out of the conventional sphere which are not really suitable for a financial plan for the average Joe. These are all signs of excess which are not encouraging the right investor behaviour. This creates pockets in the market that might introduce other risks.

Take the democratisation of private equity as an example. While this isn’t necessarily a bad thing, it raises concerns over whether clients fully understand the potential risks out of that environment and what a broader unwind could look like should blowups occur in that space.

3. Concerns over US fiscal strategy spilling over

US fiscal policy drives three key components of the financial system: the dollar, US bonds—which influence global bond markets—and gold. How the US manages its deficits and debt will have significant effects on all three, and by extension, other asset classes.

Although high deficits are not new, the bond, gold, and dollar markets are beginning to react to the unsustainable debt levels. The era of relying on reserve currency status may be ending, as evidenced by higher bond yields, rising gold prices, and a weaker dollar—all direct outcomes of US fiscal strategy and the concerns it raises.

Focus on the conventional

Managing all these moving parts requires a return to fundamentals. Investors should have a clear plan, understand their true risk appetite, and rely on trusted products, vehicles, and advisers with a proven track record.