Key takeouts:

• From 2000, the US share of global GDP on a purchasing power parity basis, has shrunk from 20% to 15%
• China has overtaken the US, growing from 7% to 18% of world GDP
• In military spend, the US is at 40% of the global total, while China is second with 13%
• US share should diminish, offset by a rise in the share of Asia.

Multipolar global dominance has become an increasingly significant topic in today's interconnected world.

Twice a year, as part of our investment process, we focus on longer-term themes. And the shift from a unipolar US-dominant to a multipolar, more diverse world outlook, is one of those themes that we've been looking at.

Let's start with economic power. The US peaked at 45% of the global economy during the 1940s. This was driven by World War II, both from the boost to the US economy and from the devastation caused in the rest of the world. It was from this vantage point that the post-World War II order was negotiated. Since then, much changed. From 2000, the US share of global GDP on a purchasing power parity basis, has shrunk from 20% to 15%. In the meantime, China has overtaken it, growing from 7% to 18% of world GDP.

Another form of power is military power. And if we look at military spending, the US is still massively dominant, accounting for 40% of the global total. China is second, with a 13% share, although its level of growth has been amongst the highest in the world. Interestingly, this growth has been powered by the growth and the size of its economy. China spends less than 2% of GDP on defense, roughly half of what the US spends.

We looked at another number of different variables in doing this analysis, including population, patents as a proxy for technology, share of trade, and many others. And then John Orford built a model on these. The picture was clear: the US is still the superpower. But its global dominance is dropping, and China is ascendant. And in fact, on rate of change, China is the best. One of the interesting sub-elements of this analysis is the decline in Europe. And particularly when we look at demographics and the work that Zain Wilson has done, the world's becoming dramatically less European.

Our conclusion is that the unipolar world we have been used to is changing dramatically, with inexorable forces driving this change forward. And when we think about the investment impact of this change, one way is to look at the areas where the US over indexes. For instance, it has 60% of the world market cap in equities, and accounts for 58% of world foreign exchange reserves. That's excluding gold, if you included gold, it drops to 50%. But it is the counterparty of 88% of all foreign exchange transactions. Now, just remember when you think about foreign exchange transactions, there's always two sides to it. So, it actually sums at 200%.

Now, all of this over-indexing is on the financial side, while its dominance in the physical world has been decreasing. The exorbitant privilege of being the world's reserve currency has been the ability for the US to run a current account deficit for more than 40 years. However, this in turn has hollowed out the US net investment position. And we don't believe this is a sustainable position. We should expect the change in our economic realities to result in a change in financial realities, and the US share should diminish, offset by a rise in the share of Asia.