I know, I know…. we’ve all heard enough of “big piece of ice”, “ICE”, “Iceland”, “hundreds of feet of ice”, “not on the frontlines” etc. And…best not mention the threat to the icy “G” spot (thousands of miles from Melania) which has ‘ruptured’ the rules-based world order. Anyway, it’s Friday and the past week felt like months before closing with the ‘bigliest’ TACO ever at Davos. Not the food version, but the geopolitical clown car currently posing as the leader-for-life of the autocrats anonymous therapy group, The Board of Peace. Entry fee is a billion, leave your moral compass at the door. Parody is dead, but for investors not quite exhausted by awful, there are genuine investment prizes out there and they are developing nicely despite the Davos noise. The White House brown shirts in ICE might ask you not to believe your eyes and ears in Minneapolis, but for the next 3-4 minutes, just read and believe….
Smaller companies are doing very well in 2026 on public markets. In fact, the smaller company US equities index, the Russell 2000, has beaten the blue chip S&P 500 index for the 14th consecutive day. That’s the best relative (small vs large) winning streak seen in markets since 1996. So, despite the headlines confidence in markets is actually pretty high. A more esoteric check on confidence can be found in the way bigger (than equities) bond/debt markets. Confidence in high quality company bonds is measured by the gap(extra cost) between US risk-free government bond yields (Treasuries) and the yields of the bonds(debt instruments) issued by companies themselves. The larger the gap(the “spread”), the larger the uncertainty of investors. So, check out current spreads of just 0.71% which are the lowest demanded by investors since 1998. In other words, investor confidence is riding high. That means many investment themes remain intact.
Best performing US large company stock last year? Good ol’ Sandisk. Yep, it delivered 577% returns to investors in 2025 alone. Its run continues. Sandisk has just clocked another 110% return in January…That’s a 1,300% return in less than one year and a reminder that the ‘picks and shovels’ of AI infrastructure are still hot, hot, hot. Not long ago Sandisk was a stodgy old memory card company (think USB thumb drives) but memory chips have became a major supply bottleneck for AI development. Generative AI models like Gemini, ChatGPT and Claude need ever-increasing ‘context’ as reference data. Or, as we used to call it, memory. An interesting part of this story is Sandisk’s partnership with Japanese manufacturer, Kioxia, whose multi-decade expertise in manufacturing is delivering a significant cost advantage. There will be more Japan surprise cost/value stories this year but it’s no surprise to Gravitas readers of our “Japan Series” of articles in 2025. Take-private buyout deals in Japan hit a record $40 billion in 2025. Now, think about Japan household savings storing up $14 trillion of firepower which equates to more than three times its GDP. However, there’s another Japan story which is worth watching too…
We keep writing about the bullying power of global bond markets. One of the biggest is Japan’s government bond market (JGBs). Last week witnessed Japanese government bond yields (cost of money) rising to levels not seen since the 1990s. That is a worry because Japan has a lot of debt (but also a lot of savings). However, there is a bright spot in this rising bond yield story. Ordinarily, inflation is a bad thing, particularly for bonds. But… in Japan, monetary authorities and successive frustrated governments have spent decades trying to generate inflation to encourage spending NOW, and not years in the future. Of course, bond yields can’t be let run out of control but if managed/balanced carefully, there will be many more buyout deals, venture capital growth and M&A in the Land of the Rising Sums….of investment capital. The bond yield spike is not just a Japanese phenomenon.
US monetary authorities have been cutting interest rates since 2024 but bond yields (and mortgage rates) remain stubbornly high. In this instance investors are worried about Fed independence, tariff chaos and the vaporising of the rule of law in Washington. Somebody might have to explain to Agent Orange that bonds and debt instruments are financial contracts. Then again, that never meant much to him or his poor bankers in Manhattan during the ‘90s. However, this inflation uncertainty can be a good thing for particular parts of the investment markets. In particular, you will hear more about real assets. Atoms rather than bits. Anyone seen the silver price this week? Yep, $100 here we come. Or check out Brazil. It makes and owns lots of real things in the agricultural, mineral and materials spaces. Brazil’s stock market is already up 10% year-to-date while US and European markets are sitting on more restrained returns of 1-2%.
These are not new themes. Really this article is a reminder, despite the bewildering headlines and global ‘rupture’ (do read Canadian PM Mark Carney’s Davos speech), that investment and economic stories continue to develop along the same trajectories experienced in 2025. Indeed, to use Carney’s words, if there is a new theme/story, it is to look at the ‘middle powers’, not the autocratic gorillas, and explore opportunity in the likes of Japan, Brazil and ….. a Europe which finally stood down a bully with some not-so-subtle assistance from those law-loving global bond markets.
