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On screen disclaimer:
Please read important information at the end of this program. Recorded on 03/26/2026.
Chris Hyzy
For decades, investors assumed globalization would reduce costs, smooth supply chains and dampen volatility. Today, that assumption no longer holds.
On screen copy:
Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
Hi, I'm Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. We're observing in real time how rising geopolitical tensions, energy shocks, and supply-chain disruptions can expose just how fragile critical systems really are. National security and preserving economic interests are increasingly dominant drivers of capital intensity, a theme the Chief Investment Office has called a defense super-cycle.
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Haim Israel
Head of Global Transition and Thematic Research
BofA Global Research
Now to help understand what this fragmented world means for investors, I'm joined by Haim Israel, head of Global Transition and Thematic Research for BofA Global Research.
Chris Hyzy
Haim, the world is very volatile. Geopolitical risk is at its highest level. But in terms of where we are today, how is the current military conflict, and coming out of Ukraine and Russia, affecting the investment landscape from your perch as a relates more or less to security?
Haim Israel
It's not just security. There's a fine line between the corona pandemic, the Ukraine situation and the current conflict in the Middle East. We've seen a world that is being deglobalized. We've seen a world that countries are getting more and more isolated, thinking about their own resource, their own supply, their own independency from a macroeconomic and geopolitical perspective. And we see a race over those resources, over technology, over human capital, over everything that we see right now. The conflict in the Middle East we're seeing right now is a continuation of what we have been seeing in Ukraine. What we've seen geopolitically lately, and we're seeing this trend is here to stay.
On screen copy:
Global military spending reached $2.7 trillion in 2024.
Source: BofA Global Research, "The ABCs of Transition Investing," Sep. 30, 2025
Haim Israel
The world of AI, the world of technology imposes a lot of risk, imposes massive need for resources as from human capital or financial assets to natural resources, energy, and so on and so on.
Chris Hyzy
Can you talk about the defense super-cycle we're going through right now in relationship to the ones that we had prior?
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NATO members expected to increase defense spending from 2% to 5% of GDP by 2035.
Haim Israel
Of course. So I think it's changing. So of course, obviously we are seeing more and more expenditures. We see NATO announcing on $1.3 trillion of investment. We see countries like Germany and others in Europe that have increased their spending to more than 5% of GDP. So that is the obvious part, and I think this trend will continue — part of the independency theme that we've been talking about. Countries need to take care of their own. We are seeing the risk.
But the second part of it, which we think is actually more interesting, is what we are spending on. You can call the conflict in the Middle East the first AI conflict. AI is taking a part of this conflict from cyber security, from defense and analytics, from intelligence, from the weapon systems. Everything is so much more complicated, smarter and using AI. And this cost money.
Now it's spending on defense tech, which is so much more complicated than it used to be in the past, because in the new battlefield you need an edge. The real value for investors is actually going to go to defense tech, where AI can start meeting the traditional defense systems. In the future, we're probably going to talk about more robotics, humanoids, and automation. But it's, it's you need to think about as the first AI conflict.
Chris Hyzy
Yeah, we're starting to see capital actually accelerate into those areas. We saw it in the past in terms of the initial outlay of investment in those areas to build it out, but now it's becoming a little bit more of a flywheel. And if we take that concept and we move it over into a more traditional end of so-called geopolitical conflict, it's energy. It's energy security. We talk about energy security today in the context of the world still needs energy, oil and gas and how important that is.
Haim Israel
So we've been saying for quite some time that energy probably is going to be the new weapon, especially after we saw the invasion of Ukraine and now the Hormuz and the Middle East, we are understanding the factor about how much energy is important. And energy wars all over the world.
Now you have to talk it with the theme, again, of technology, of AI, of the needs. We will need so much more energy in the future, even in peaceful times. Now, what we've seen is that investments in energy have started and they start a lot. And the demand is going through the roof.
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Roughly 83% of the world imports oil for energy.
Haim Israel
Remember one thing: 83% of the world is importing oil is not exporting oil, and more than 25% of this export is actually going through the Hormuz. So we understand the problems that are happening right now. Renewable energy is the solution.
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Renewable energy is roughly 25% cheaper than fossil fuel.
Haim Israel
It is cheaper, 25% cheaper energy unit versus fossil, especially now. Now it's actually even higher than that. And we need to remember one thing. This conflict hopefully is going to be over at one point. But the problems of energy demand are just going to increase. I'm a big believer that more and more countries will pursue other solutions of energy, and not necessarily fossils. So we are still big believers on renewables.
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SMRs = Small modular reactors
Haim Israel
We are still big believers on nuclear, SMRs is a long-term technology. If I take a more long-term up to, all the way up to nuclear fusion. And those are going to be the big winners long term over here.
Chris Hyzy
Critical minerals supply chains. Talk to us in the context of how important those four words are.
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Roughly 83% of rare earths are controlled by China.
Haim Israel
Right now, we understand how fragile the supply lines of critical materials are right now. It's not just the mining. 83% of rare earth metals are controlled by China, directly or indirectly. So yes, maybe lithium is mostly mined in Chile or in Canada and Australia, but the refining of it is still being done in China.
A big part of it is actually going through the Hormuz and we see the supply lines are very, very fragile. Going back to this world of security. We will see development of new resources. We will see development of new assets. And trying to go to two ways. First of all, I need to develop completely new systems.
So part of it is going to be with technology. No one told us that we need to use lithium for our batteries. Did you know, Chris, that butter — butter, the one that we make cakes and bread with — holds ten times more energy density than lithium. But for some reason we're using lithium. Technology can help us to move to other materials and other minerals that we can use in different ways.
I'm a big believer that part of the reason that we're investing so much in AI, all those trillions of dollars, is actually help us to come to a completely new systems and materials which are going to give us independency, which are going to reduce our reliance on traditional natural resources.
But long term, like energy, countries are going to move to completely different solutions and going to start using technology for these solutions.
Chris Hyzy
Now, in my almost three and a half decades of studying investing time, I have never seen butter in a portfolio. Now, having said all that, in the context of energy security, defense super-cycle, critical minerals supply chain, how should we think about these megatrends and subthemes in the context of portfolio positioning?
Haim Israel
Think about the big picture.
I always urge to stop focusing on the short term, stop focusing on the quarterly numbers or the short term trends that we're seeing right now.
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Portfolio themes in a fragmented world:
- Energy and resource security
- Supply networks
- Tech-enabled defense
We're heading into a world of massive investments. Investments, bricks and mortars are going to be big winners over here. We're going to upgrade our networks, our energy networks. Water networks, our natural resources supply lines. Everything is going to be upgraded and changed.
We're going to have to invest in completing new ways of energy. We have to invest in security. Security is not just traditional weapons securities are securities. Security is AI, security is cyber security, which is, as we've seen with the current conflict, is a pivotal part, exactly like airplanes and ships. And we have to invest in the new technology, around those, all those areas.
Chris Hyzy
Let's switch now a little bit to risks. We can't talk about geopolitical volatility without what risks should we all know about?
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Geopolitical volatility risk factors:
- AI race heats up
- Fracturing of superpowers
- Water usage
- Resource demand-driven inflation
Haim Israel
So well, we believe that those are what we call the AI wars will continue the race over, resources will continue, and we'll see more and more and more, more fractures between the superpowers and those fractures of not just, of course, U.S.-China directly. We've seen them all over the world. And and we are seeing that the United is trying to limit access of China to technology.
As a result, part of the risk is not just trying to get this technology, but actually this is going to be a race for technology, We are seeing race over AI models. Semiconductors. The one area which I would highlight as a big risk worldwide is water.
No one really is talking about how much water data cities are consuming right now. Two thirds of the planet is facing severe water shortages because of the I.T sector, So that's going to be another major risk that we are going to see over here.
One of the long term risk is, of course, right now we're heading into an inflationary environment. Prices of commodities are going up. Whereas materials the the rush after every critical materials is is inflationary.
Chris Hyzy
If you think about one major takeaway in the context of how capital is flowing and investments in general, what would that be?
Haim Israel
We build our world in the 50s, Chris, after World War two. We topped it with some software in the 90s during the internet revolution. We topped it with a little bit more hardware in 2010, with the mobile revolution. We need to rebuild everything right now.
Think about the infrastructure, think about the entire ecosystem of this infrastructure. By the way, infrastructure is also security. Infrastructure is resources. Infrastructure is energy. Everything is about to be rebuilt and everything is part of this AI revolution.
Chris Hyzy
Rebuilding infrastructure in the long run is very growth enhancing, at least in our view. Thank you for joining me today.
Haim Israel
Thank you very much, Chris.
Chris Hyzy
Rebuilding infrastructure in the long run is very growth enhancing, at least in our view. Haim, thank you for walking us through these powerful themes and how they're reshaping the global investment landscape. In a world defined by fragmentation rather than integration, portfolios need exposure not just to growth — but to resilience, security, and strategic assets. As always, we encourage you to continue the conversation with your advisor, if you work with one, about how these themes may fit into your longterm strategy. Thanks for watching, and we'll see you next time.
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[End of transcript]
Several decades of globalization are giving way to a more fragmented, competitive world order—one where resilience and control of critical systems like artificial intelligence and cybersecurity increasingly shape economic outcomes. From geopolitical conflict to supply chain disruptions, the forces driving volatility are also leading to new and different long-term investment opportunities.
"In an increasingly fragmented world, returns accrue to those who control, secure and scale critical systems and technology," says Haim Israel, head of Global Transition and Thematic Research for BofA Global Research.
In the video above, Israel joins Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, to explore how geopolitical volatility is reshaping three key investment themes: defense and security, energy independence and critical minerals — areas that sit at the intersection of national priorities, technological innovation and long-cycle capital investment.