How geopolitics could reshape your portfolio

[Music in background throughout opening sequence.]

On screen graphics:
2026 Midyear Outlook
How geopolitics could reshape your portfolio

On screen copy:
Joe Quinlan
Head of Market Strategy
Chief Investment Office
Merrill and Bank of America Private Bank

On screen disclosures:
Please read important information at the end of this program. Recorded on 5/28/26.

Joe Quinlan
Hi, I'm Joe Quinlan, Head of Market Strategy for the Chief Investment Office. We're continuing our 2026 Midyear Outlook conversation with a deeper dive into a topics that dominates market behavior so far this year — geopolitics.

Events like the conflict in the Middle East and the regime change in Venezuela have stirred market volatility. But nothing looms over the long-term view of the markets and the world economy quite like the rivalry between the great powers the United States and China. Whether it's trade, chips, artificial intelligence, Taiwan — there are so many areas to discuss, so I'm happy to be speaking today with Larry Di Rita, Head of Public Policy for Bank of America. Larry, thanks for joining me.

Larry Di Rita
Thanks a lot for having me, Joe.

Joe Quinlan
Let's just get right into it — US-China. Just saw the summit between President Trump — Chinese leader — what should investors make out of the outcome?

On screen copy:
Larry Di Rita
Head of Public Policy
Bank of America

Larry Di Rita
This is one of a series. There's going to be another one later this year. There was one last year. And this is an attempt by both countries frankly, to keep the tensions manageable between the two countries, between our interests, which are not in line entirely. And so what you saw at this most recent summit is, I think, as much as anything, an attempt to avoid difficult, controversial issues.

On screen copy:
Trade balance with China:
Source: Council on Foreign Relations, as of May 15, 2026.

• $202 billion deficit in goods
• $33 billion surplus in services

Larry Di Rita
There were certainly discussions about the things that matter most to each country — trade, in the case of the U.S. And in some cases, the issue of the Indo-Pacific security. But both sides are trying to maintain sort of a sort of controlled tension that's manageable between the relationships. And that's not a bad thing for markets or for the economies.

Joe Quinlan
What about the thesis that we're decamping or decoupling? Is that really realistic for two big, huge economies to disengage?

Larry Di Rita
Yeah, I think there's been an evolution in thinking around that more towards de-risking for both sides. Both sides are looking to de-risk their economies from each other knowing that both economies are highly linked. They're linked to each other. They're linked to the global economies. In the case of the US, you know, companies are looking for a China plus one or a China plus two type strategy where you've got a supply chain that you can manage. We saw during Covid you couldn't get masks anywhere but China just to pick an easy example. You're seeing an evolution away from that, which is probably good for everyone.

Joe Quinlan
So here we are at mid-year point. How does the Middle East factor into U.S. public policy between now and in a year and beyond in your opinion?

Larry Di Rita
There's been a significant shift in the landscape in the Middle East for over, going over many years. The first Trump administration, to some extent sustained during the Biden administration and now accelerated with the Abraham Accords with shifting relationships. We're seeing shifting relationships within the Arab world. The Saudis and the UAE are developing a bit of a, almost competitive, attempt for leadership in the Arab world.

The role of Iran throughout the Gulf region and throughout the Middle East has been substantially altered because of the U.S. and Israeli war with Iran. I think the war has impacted a little bit of that shift because there's now questions about just how safe is this region for people to want to invest in, for young people to want to go live there, etc. So those the Arab states are going to have to figure out how to move beyond that.

Joe Quinlan
Well, let's round out this conversation with China. Rare earth minerals. China has a chokehold, so to speak. Now, how does that play out? What's the U.S. policy response?

Larry Di Rita
That's another area where diversification is going to be necessary. And we're starting to see that the U.S. administration has embarked on something called Pax Silica, where they're trying to develop coalitions to kind of transcend the dependance on rare earth processing that China has a monopoly, on or a significant market share on. President Trump has said, it's not that we have a rare earths shortage. We have a rare earth processing challenge. And that's correct. And so are there ways through coalitions and, you know, from mining to finished products and compute, is there a way to kind of transcend the dependance that the world has on China's processing? And we're seeing, movement in that direction. But it's a long way to go. And China clearly has an advantage in that area.

I would turn that around on you, though, and I'd just ask you, given this superpower relationship, as many have called it, what's the market opportunities? Are there opportunities that develop as a result of managed competition between the U.S. and China?

On screen copy:
Potential opportunities amid U.S./China competition:

• U.S. tech companies
• Chinese tech companies
• Life sciences

Joe Quinlan
Well, from the CIO perspective, we're talking about, say, US technology leaders, but we're also talking in the same breath China technology leaders. And we're telling own both. You can it's in retail Investor. You can own both China tech and U.S. tech because they are the predominant leaders in artificial intelligence, quantum computing, you know, cloud services. So we're looking at both of the opportunities set.

Another one we're looking at United States is very strong in life sciences. So is China building out their medical science apparatus as well. So there's ways to kind of not, it's not either-or. That's not how investors should look at it. And when we look at the CIO it's like, what are the best companies in these growing sectors in both countries that you want to have exposure to?

Larry Di Rita
So even with that in mind on AI in particular, you mentioned AI do you see one body of technology have an advantage over another, China versus U.S. Is that the way we're thinking about it even?

Joe Quinlan
We're looking at it very carefully, Larry, in the sense that the large language models could have how much out of China, a cheaper version, less computing requirements. What would that mean for the U.S. in terms of the large language models, the leaders here and all the computing power demand that we need vis-a-vis the data centers. It's a very interesting race. It's getting more intense, a lot of money being spent. The biggest issue is what large language model is going to be used outside of China and the US, right.

There's a lot of people out there. There are 6 billion people plus in India and Middle East, Europe. What are they going to adopt? Is it going to be the US standard models or the Chinese standard? Maybe a little bit of both, but to be determined.

Larry Di Rita
Is that also the case with critical minerals? Is there investable opportunities in both China and the US when it comes to critical minerals strategies as well?

On screen copy:
Rare earth company opportunities extend beyond U.S. and China.

Joe Quinlan
In the US in particular, you're seeing you know, this. You're sitting in Washington. The more public or, you know, government activism and U.S. companies taking shares in that are very strategic. But we're also seeing opportunities in Brazil, parts of Europe. They have a rare earth minerals, the processing capacity that's coming on board. So as you know, you know, there's a kind of a coalition being built in and around the US and our allies to increase rare earth minerals production and refinery. So really, the rare earths story is goes beyond just the United States and China. It's Latin America and parts of Europe.

Larry Di Rita
You know, you mentioned Brazil. You mentioned other Latin America. I saw something you wrote recently about sort of how to rethink the whole idea of emerging markets. In other words, the asset class that people have gotten comfortable.

On screen copy:
Taiwan and Korea represent 46% of the MSCI Emerging Markets Index.
Source: Factset. Data as of May 19, 2026.

Joe Quinlan
Well, brings us back to artificial intelligence, number one, because the emerging markets are having a phenomenal run this year after last year as well. But when you kind of peel it back, there's three companies, two in South Korea and one in Taiwan. Many of us know who they are, that they're AI driven components. Right? They're sending a lot of product to the United States, AI related to build out.

They're just tremendous amount of activity, tremendous amount of upside earnings potential. Number two, the emerging markets is an asset class. It's very heterogeneous right. It's not one, it's many. So you've got a bucket of countries that have different levels of economic growth, democracies, you know other political models.

So we're telling investors buy a company in this country that does what they do well — whether it's banking, processing food, agriculture, minerals, artificial intelligence. Just be more discerning when you're investing in the emerging markets. Yeah.

Larry Di Rita
What are we not thinking about that we should be in terms of the risks out there and then maybe flip it around in terms of the opportunity?

On screen copy:
Geopolitical concerns to keep in mind:

• U.S. politics
• War in Ukraine
• Increase in U.S. / China tension
• The Taiwan situation

Joe Quinlan
Well, I'm going to ask you that, too, since you're sitting at the epicenter of policy uncertainty, I think honestly, Larry, I kind of the geopolitical factor that's missing is just the political dysfunctionality of the US. We hear that a lot from our clients, a lot of our clients very bullish on the US economy. They like the earnings outlook, but politics is interfering.

This is one reason, not the sole reason. There's about $8 trillion sitting in money market funds right now. And when you speak to clients like why are you still in cash when we're in the middle of one of the strongest bull markets, they say, I'm worried about the politics or I'm going to wait until we get some more political clarity.

That's number one just here at home. Number two, keep your eye on Ukraine, Russia, because that is becoming a very interesting backdrop. We're all focused on Iran. Right and Straits. But what is Russia doing. Will they go beyond Ukraine? If you talk to the Europeans, that's top of mind. And therefore you're seeing a lot of defense spending, a lot of more spending on drones, surveillance, cyber security.

Larry Di Rita
Interesting. You mentioned, the Ukraine, Russia. I worry about I will tell you, at the beginning stages of the invasion of Ukraine, there was there was a lot of, new sanctions being put in place. It was luckily, most of the large U.S. companies, there were some exceptions, didn't have tremendous exposure in Russia.

On screen copy:
Geopolitical concerns to keep in mind:

• U.S. politics
• War in Ukraine
• Increase in U.S. / China tension
• The Taiwan situation

So it took time to unwind all that. I do worry of a future conflict where there's sanctions placed on much larger economies. We've talked about the US-China competition is going on. You could see backing into some sort of tension period where sanctions and other tools like that are applied. I think a much greater challenge for markets to have to adjust to if there were sanctions at the level we saw in Russia applied to a much larger economy. And that's one of the things I think about. Right.

Joe Quinlan
Well, related to that, Larry, the elephant in the room, China. China, Taiwan. Yeah. Do you worry about that that happening that they make a move. The mainland makes a move on Taiwan that catches the markets off guard that I worry about semiconductor production. So how do you how do you process that.

Larry Di Rita
The interesting thing about the Taiwan situation is that Taiwan, both the U.S. and Chinese economies depend heavily on a sole source of of capability in Taiwan. So in many ways, Taiwan, sort of the third superpower there's in both the U.S. and China, recognize that. So the current policy is no change to the status quo unilaterally. In other words, if the status quo is to change, it has to be agreed upon by all the parties.

Larry Di Rita
And if everybody can, if both sides, the U.S. and China remain in that posture, then hopefully we can kind of manage through this period of tension. I think, and you can speak to military experts and military analysts, the challenges to a military operation in Taiwan for China are quite significant. And China certainly understands that, including the fact that they haven't had a military campaign in our lifetimes.

Joe Quinlan
So no shortage of geopolitical tension.

Larry Di Rita
We'll be back to talk some more.

Joe Quinlan
I know, never a dull moment. Thank you Larry.

Larry Di Rita
Thanks a lot for having me.

Joe Quinlan
This conversation has been eye opening. The relationship between the US and China is very much intertwined. The next few months on the world stage will be so important for investors to watch. Please do keep your goals in mind as you navigate the volatile environment we're in. Don't miss the Midyear Outlook webcast and if you have any questions, please speak with an advisor if you have one. Thanks for watching.