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From Headlines to Balance Sheets: The Geopolitical Era of Investing

The invasion of Ukraine in February 2022 by Russia caused not a geopolitical shock but rather a change in the map of investments of the world. Stocks in the commodity markets shot up, defence stocks shot up, and energy security was a national policy objective. What had been long considered headline risk, or noise in the market, which had short-term consequences, transformed into a structural pricing factor for investors.

The world has become squarely in a place where geopolitics makes headlines and influences portfolio construction, asset pricing, and capital allocation. Be it redefined alliances and supply chains, fiscal priorities, or risk premia, the global investment environment has reached a new stage that is fragmented, politicised, and more uncertain.

Geopolitical Risk as a Pricing Factor

Traditionally, investors viewed geopolitical events as transitional volatility, a market blip for trading, rather than a foundation for allocation strategy. That view no longer holds.

The trends of systematic pricing of geopolitical risk are evident to the International Monetary Fund (IMF) and major investment houses. The IMF in its 2025 Global Financial Stability Report concluded that increases in geopolitical risk now have a significant negative impact on equity valuation and an increase in forecast volatility, especially in emerging markets and economies that rely on trade. People are increasingly valuing these long-term impacts ex ante, rather than after the shock.¹

This is echoed by MSCI research stating that geopolitical risk has now been observed in forward earnings, credit spreads, and even the exposures of factors where defence, cybersecurity, and energy security have proven to be structural outperformers when global tension is being experienced.

In summary, geopolitics now serves as a price variable rather than a narrative.

Strategic Themes: Defense, Energy, and Food Security

Defense Spending No Longer Cyclical.

SIPRI reported that in 2024, the world military expenditure reached an all-time high of 2.24 trillion and increased by 9 per cent annually. The multi-year rearmament cycles by the U.S., China, and European NATO members are now underway, pouring money into defence contractors, drone technology, and cyber-infrastructure companies.²

In addition to defence stocks, investors are also looking back at industrial supply chains associated with national security, such as semiconductors, rare earth materials, and aerospace components.

Energy Arbitrage is Replaced by Energy Security.

Energy realism has challenged the belief that oil and gas would disappear in a world transitioning to renewable energy sources. The Ukraine war revealed Europe’s reliance on Russian gas to be a significant liability. Liquefied natural gas (LNG) infrastructure, domestic extraction, and energy diplomacy are influencing investment flows in retaliation.

Energy has now become a point of convergence between national policy and alliance organisation and trade. The International Energy Agency states that investment in clean energy worldwide exceeded 1.7 trillion in 2024, yet the infrastructure for fossil fuels also recovered because of national interests.²

Food as a Geopolitical Asset

Previously, Russia and Ukraine contributed three-quarters of the world’s wheat exports. The flow of food has now become fragmented. Food staples have become a political weapon, with export bans, sanctions, and port blockades.

The academic literature indicates that the markets of food commodities now respond to geopolitical stresses with volatility, which is permanent, undermining the traditional diversification measures.³

For the investors, this includes agricultural commodities, land use assets, and supply chain logistics for strategic allocations.

Bloc-Based Investing and Friend-Shoring

Deglobalization in Motion

In late 2023, World Trade Organization Director-General Ngozi Okonjo-Iweala said that globalisation is not dead but wounded. The emergence of friend-shoring – the transition of capital supply chains to politically aligned countries is altering the movement of capital.

The 2024 announcement of Apple shifting some portion of its iPhone supply chain out of China to India is representative of the wider trend: bloc-based investing, in which capital is moving according to geopolitical alignment, rather than cost or efficiency.

OECD reports that China-U.S. foreign direct investment (FDI) has declined by 80 per cent since 2016, and foreign direct investment between the U.S. and Vietnam and Mexico and India has increased.⁴

This has formed new winners and losers. The inflows to countries within the friend-shoring circle are increased, whereas the capital costs of countries outside the circle are rising and equity valuations are being discounted geopolitically.

A New Definition of “Safe Assets”

Safe havens are now used to clear U.S. Treasuries, German Bunds, and Japanese yen. However, geopolitics is reshaping this concept.

Resilience Over Ratings

Sovereign risk has been further politicised by the standoff in the U.S. debt ceiling, tensions in the Taiwan Strait, and the risk of sanctions. Investors are seeking more and more tough jurisdictions those that possess geopolitical influence, strategic linkages, and command of important resources.

Safe assets now include:

Commodities with strategic utility (e.g., copper, uranium, LNG)
Bonds from politically neutral or aligned countries
Defense-linked equities with long-term government contracts

Traditional safe assets may still offer stability, but their definition now requires a holistic view given the geopolitical overlay.

Conclusion: Questions for the Modern Portfolio

Geopolitics has been over the line, out of the story, and into the portfolio plan. The allocators are currently forced to reconsider the impacts of international powers on returns, risks, and exposures.

Key Questions for Investors:

Are my country allocations exposed to emerging geopolitical blocs or isolated regimes?
How do my sector bets align with national strategic priorities (defence, food, energy)?
Am I underestimating volatility from non-economic shocks, such as sanctions or cyberattacks?
How should I rethink diversification in a world of friend-shoring and trade fragmentation?
What metrics or data sources can reliably integrate geopolitical risk into valuation models?

In a new era of strategic competition, economic nationalism, and systemic shocks, investing’s geopolitical grammar is no longer a choice. It’s fundamental.