Rise & Fall of World Powers: What Malaysian Investors Need to Know
•By Maher Alias
Artikel ini juga tersedia dalam Bahasa Melayu
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The world is changing. The great powers that have long dominated the global economy are now facing increasingly serious internal and external challenges. For Malaysian investors, understanding this cycle is not merely a history lesson - it is the key to making smarter investment decisions in the coming decade.
Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, has studied 500 years of great empire history and discovered a recurring pattern. In his analysis titled Principles for Dealing with the Changing World Order, he shows how great powers like the Netherlands, Britain, and the United States rose to the top and eventually declined - following a predictable cycle.
You might wonder - what does the 17th century Dutch Empire have to do with your stock portfolio today?
The answer is simple: every time a major power shift occurs, it brings massive changes to currencies, stock markets, and investment opportunities. Investors who understand this cycle can prepare early, while those who don't may get caught in the wave of change.
According to Ray Dalio, three conditions are occurring simultaneously for the first time since the 1930-1945 era:
All three conditions have occurred before and have almost always led to changes in the world order.
Ray Dalio identified eight key metrics that measure the strength of an empire:
Successful empires typically begin after winning a major conflict. After that, new leaders consolidate power, build strong institutions, and create a period of peace and prosperity.
The Dutch Empire (17th century) rose by becoming the most educated nation in the world at that time. They invented a quarter of all major inventions, including ships that could sail around the world and the modern capitalist system to finance those voyages. The Dutch guilder became the world's reserve currency.
The British Empire then took over by hiring Dutch ship designers to build better ships, constructed by cheaper British workers. The pound sterling became the new reserve currency.
The United States emerged dominant after World War II. In 1944, the Bretton Woods Agreement established the US dollar as the world's reserve currency - a position maintained to this day.
Interestingly, each of these empires followed the same cycle: quality education → innovation → competitiveness → economic strength → global trade → military strength → reserve currency → peak → decline.
This is the most important part for investors to understand. An empire's decline doesn't happen suddenly - it comes gradually, then all at once.
As citizens of an empire become wealthier, their labour costs also increase. This makes them less competitive compared to other nations willing to work for lower wages. At the same time, other countries copy the dominant empire's technologies and methods.
The generation that fought to build wealth is typically more hardworking and disciplined. But the generation that inherits that wealth tends toward luxury and less effort. The Dutch Golden Era and British Victorian era are examples of how prosperity eventually leads to weakness.
When a nation has a reserve currency, it can borrow more because everyone wants to save in that currency. But this privilege is often abused. The US currently has national debt exceeding $36.5 trillion and continues spending more than it earns.
Wealth concentrates in the hands of a few at the top, while those at the bottom face increasing pressure. This creates political tension - left-wing populism wanting to redistribute wealth and right-wing populism wanting to protect the status quo. This phenomenon is clearly playing out in the US today.
A declining empire eventually faces challenges from rising powers. The Dutch clashed with the British, the British faced Germany, and now the US faces China. The cost of defending the empire grows while finances weaken.
One historical episode highly relevant to today's investors is what happened in 1971.
At that time, the US dollar was still convertible to gold. But the US had been spending far beyond its gold reserves. On August 15, 1971, President Nixon announced that the US would no longer exchange dollars for gold - a move that essentially meant the US was defaulting on its promise.
What happened next? The stock market rose 25%. Newly printed paper money flowed into markets, driving up prices of stocks, gold, and commodities.
The same thing happened in 1933 under President Roosevelt, in 2008 during the financial crisis, and in 2020 during the pandemic. Every time a government prints large amounts of money to resolve a crisis, the value of paper money falls but asset prices rise.
Dalio's principle investors need to remember: when central banks print large amounts of money to relieve a crisis, buy stocks, gold, and commodities because their value will rise while the value of paper money will fall.
In February 2026, Ray Dalio stated that the US has entered what he calls "Stage 6" - the final phase of the big cycle marked by power struggles and institutional weakness.
The signs he sees:
However, Dalio also emphasises that this decline doesn't mean it cannot be fought. Like humans who can extend their lifespan with good healthcare, empires can also slow their decline if their leaders act wisely.
As investors in a small nation open to the global economy, we need to be aware of several things:
Don't place all your investments in a single currency. The Malaysian ringgit itself is influenced by US dollar and Chinese yuan dynamics. Consider having exposure to multiple markets.
History shows that every time an empire prints money on a massive scale, gold and commodities rise in value. Bank Negara Malaysia itself has been adding to its gold reserves in recent years.
Malaysia sits at a strategic crossroads between the US and China. Both powers are our major trading partners. Changes in US-China relations will directly impact Malaysia's economy and stock market.
If China continues to rise as predicted by historical cycles, Asian markets may offer better long-term growth opportunities compared to mature Western markets.
Dalio teaches us to observe the "vital signs" of empires - like a doctor monitoring a patient's vitals. Watch national debt levels, wealth inequality, political conflict, and educational competitiveness. These signs can help you anticipate economic direction before the effects are felt in markets.
Here is a summary of Dalio's 8 metrics and how they are relevant to investment decisions:
| Metric | Example Indicators | Investment Implications |
|---|---|---|
| Education | PISA rankings, literacy rates | Countries with strong education = long-term growth potential |
| Innovation & Technology | Patents, R&D spending | Tech stocks in innovative countries |
| Global Competitiveness | WEF competitiveness index | Choose competitive markets |
| Economic Output | GDP, growth rates | Markets with strong economies |
| World Trade | Export/import share | Companies benefiting from trade |
| Military | Defence budget | Defence and aerospace stocks |
| Financial Centre | Financial centre rankings | Investments in financial sector |
| Reserve Currency | Global usage | Forex and currency protection |
It refers to the big cycle theory showing how world empires rise and fall following predictable patterns over 500 years. This cycle involves phases of emergence, peak, and decline lasting approximately 250 years for each major empire.
According to Dalio's framework, the US dollar shows signs of a late-cycle empire - massive debt, excessive money printing, and challenges from other currencies. However, this process typically takes years or decades, not overnight.
Three key steps: diversify across asset classes (stocks, gold, commodities), diversify geographically (don't focus on one market), and stay educated about global macroeconomic conditions.
Data shows China is increasingly closing the gap with the US in economic output and world trade. However, the US still leads in innovation, military strength, and the dollar as reserve currency. This power shift, if it occurs, will take years.
Every time a dominant empire prints money to cover its debts, the currency's value falls and gold prices rise. This happened with the Dutch guilder, the British pound, and is now happening with the US dollar. Gold acts as a hedge against currency devaluation.
Stage 6 in Dalio's framework refers to the final phase of the big cycle, marked by serious internal and external conflicts, power struggles, and institutional weakness. In February 2026, Dalio stated the US has entered this stage.
The 1944 Bretton Woods Agreement established the US dollar as the world's reserve currency after World War II - marking the beginning of the new world order we know today. Dalio's cycle shows that every new order begins after a major conflict and is eventually replaced by the next one.
Yes. Malaysia as an open economy is heavily influenced by US-China dynamics. Changes in global capital flows, ringgit value, and demand for Malaysian commodities (palm oil, petroleum, semiconductors) are all connected to this great power cycle.
The cycle of rising and falling world powers is not just a history lesson - it is an economic reality that affects your investment portfolio today. By understanding this pattern, Malaysian investors can better prepare for the changing world order that is currently unfolding.
What matters is that we don't need to panic, but we do need to be aware and prepared. As Ray Dalio himself said: "What matters most comes down to just two things - earn more than you spend, and treat each other well."
If you want to start building an investment portfolio resilient to global changes, the first step is opening a trading account.
Open a CDS M+ Online Account to start investing on Bursa Malaysia, as well as international stocks in the US and Hong Kong markets via this link.
Download our free Stock Market Basics Ebook to understand investment fundamentals before you begin via this link.