Geopolitics and investing: what matters and what doesn’t

This note contains an overview of our market views, what we are watching, and our portfolio strategy. Any reference to portfolio positioning relates to our Flagship Solution. Clients with bespoke discretionary or advisory portfolios should consult their Client Advisor for the latest update on your portfolio.

The US & Greenland | How do you invest when geopolitics won’t sit still?

The year has only just begun, yet 2026 is already setting an unusual tone with markets feeling slightly out of sync. Emerging markets are pushing to new highs, gold is drifting upwards again and political noise from Washington is never far from the surface, causing wide swings in commodities.

The latest issue has to do with renewed tensions between the US and some European countries, with President Donald Trump threatening to impose an extra 10% tariff on imported goods from France, Germany, the UK, the Netherlands, Denmark, Norway, Sweden and Finland from 1 February, to rise to 25% from 1 June if no resolution on the dispute over Greenland is found.

At the time of writing, the response from the European Union isn’t clear, other than a possible suspension of existing trade arrangements and a debate on the implementation of counter-measures. Similarly, it’s not clear whether Trump’s intentions are a negotiating tactic similar to the 100% tariff threat on China last year, which never materialised. The issue is further complicated by a possible ruling of the US Supreme Court, which could declare the tariffs incompatible with US law. That could trigger a short rally across equity and credit markets, but also trigger the reimposition of tariffs via other means, cutting the rally short.

We caution against overreacting to geopolitical headlines and recommend to stay invested and diversified across regions, with key risk mitigators in place. Statistical evidence supports this approach. For example, JPMorgan analysed more than 80 years of data, comparing equity returns after major geopolitical events to ‘quiet’ periods. They find that while markets may underperform over the very short-term (3-month), 6- and 12-month equity returns after a geopolitical shock are statistically indistinguishable from other periods, implying that geopolitical events often don’t matter for long-run returns (“How do geopolitical shocks impact markets? May 2024”)¹.

Similarly, Morgan Stanley looked at 23 major geopolitical events since 1950 and reported that geopolitical shocks were often followed by higher equity prices over 6-12 months, with only a minority of outcomes showing negative returns, and those were typically associated with commodity shocks such as large oil price moves, which isn’t the case right now (“Why stocks can be resilient despite geopolitical risk, June 2025”)².

Of course, some events can temporarily cause market setbacks, but they’re often related to significant military escalations. Schroders looked at major conflicts over the past 30 years. In each of these examples, equities initially fell as markets assessed risk, but typically recovered strongly within a few months (“Measuring the market impact of geopolitics, September 2019”)³.

This finding is in line with recent evidence from the International Monetary Fund’s Global Financial Stability Report, which reviewed the market impact of geopolitical shocks, finding that stock prices generally show modest reactions on average, but large military conflicts or supply shocks (e.g. oil) can have more pronounced effects. The broad finding supports the view that most geopolitical events aren’t dominant drivers of aggregate returns (“Geopolitical risks: implications for asset prices and financial stability, April 2025”)⁴.

Strategy | How can investors diversify geopolitical risks?

The overarching theme here is that the world is fragmenting into different geopolitical blocs, something we’ve argued for a while. When you look back, the shift really began in 2016 with Brexit and Trump’s first presidency. From that point on, we moved towards a more geopolitically fragmented, multi-polar world, rather than one single globalised economy and market. This new world is characterised by more competition among major powers over resources and technology, rising regional tensions and more significant government intervention in the economy. 

The specific events we’ve witnessed over the past decade, and we’re likely to continue to see every now and then, are a manifestation of this underlying trend. Anticipating these events with the precision that would be needed to adjust portfolios ahead of time is, in our view, very difficult and, often, impossible. For us, planning beats prediction. And planning means a strategy of global diversification, such that a wobble in parts of the portfolio, e.g. Middle Eastern tensions impacting equities, might be mitigated or offset by a gain elsewhere, such as our gold and commodity exposures. This is why we continue to hold gold, broad commodities, inflation-protected bonds and hedge-fund strategies as part of our long-term allocation.

More recently, given the unfolding situation in Venezuela and renewed uncertainty around Greenland and Iran, we upgraded the quality of our fixed income exposure. We took profits on global investment grade bonds, where valuations are demanding, and bought safer US Treasuries, which are now more attractively valued than they were a few months ago. And, more tactically, given a good start to the year for markets, we’ve also extended our US equity warrant – paying a small premium for an ‘insurance’ instrument that appreciates when US equities fall (where client knowledge and experience, and investor guidelines and regulations, permit).

This week | Monetary policy still in focus

We’re currently positioned with an equity overweight but, recognising some of these risks, our overweight is moderate. We stay overweight emerging market equities because all four drivers work in their favour. When trade uncertainty fades, export-heavy economies breathe easier. China has stepped up support for the private sector and continues to lower interest rates, as it did last week. Its strategy is anchored in technology at a time when global supply chains still run through Asia. Taiwan Semiconductor Manufacturing Company Limited’s (TSMC) strong earnings last week reinforced the idea that the AI story isn’t running out of steam.

We also hold a US equal-weighted index that has been outperforming early in the year as stimulus slowly feeds through and supports sectors such as financials and industrials. This helps mitigate concentration risks stemming from the US tech sector. On top of that, we hedge our currency exposure, stripping out foreign-exchange effects, as we expect the dollar to stay soft.

Finally, we’re overweight UK equities as well, as it’s a market exhibiting defensive properties and a complementary sector mix relative to other regions, an approach we find useful to gain exposure to a differentiated set of drivers.

This week | Greenland and tariff meetings at Davos

The European institutions are weighing potential retaliation against the US, including up to €93bn in tariffs and possible use of the Anti-Coercion Instrument, which could restrict access to the EU market for US companies, including in services and Big Tech. These measures are prepared but not yet triggered, as most member states continue to prioritise dialogue over escalation.

If there is any content / terms in this article you are not familiar with, please take a look at our Glossary.