Geopolitical Risk and Your Investment Portfolio: A Practical Guide

Geopolitical risk has moved from the periphery to the centre of investment analysis. The Russian invasion of Ukraine in 2022, escalating US-China trade tensions, disruptions to global supply chains, Middle East conflicts, and political instability across multiple continents have reminded investors that political events have direct, material consequences for asset prices — and that portfolios built for the benign globalisation of the 1990s may be poorly prepared for the current environment.

For internationally mobile investors with assets across multiple jurisdictions, the stakes are higher still. The practical question is not just how geopolitical events affect your portfolio's returns, but whether certain assets could become inaccessible, restricted, or subject to sanctions.

How Geopolitical Events Affect Investment Returns

Geopolitical events affect investments through several channels:

Direct asset impact. Physical assets in conflict zones, sanctioned jurisdictions, or politically unstable countries can lose value rapidly or become entirely inaccessible. Russian equities effectively became worthless for foreign investors following the 2022 sanctions — market access was suspended, dividends were blocked, and in many cases custodian arrangements broke down.

Currency effects. Political crises typically weaken the currencies of affected countries. A currency depreciation of 20–30% (as seen in multiple emerging market crises) can wipe out years of investment returns for a foreign investor holding assets denominated in that currency.

Commodity price shocks. Wars and supply chain disruptions drive commodity prices — particularly energy and food. This feeds into inflation, which erodes the real value of fixed income assets and can trigger monetary tightening that depresses equity valuations.

Corporate earnings disruption. Sanctions, tariffs, supply chain disruptions, and market access restrictions affect corporate revenues and profitability. Companies with significant exposure to affected regions may see earnings fall materially.

Safe haven flows. In periods of geopolitical stress, capital tends to flow to perceived safe havens: US treasuries, gold, the Swiss franc, the Japanese yen. This can create short-term losses in other asset classes even where there is no direct connection to the conflict.

Historical Lessons

Financial history offers instructive precedents for assessing geopolitical risk:

1973 Oil Embargo. The Arab oil embargo triggered a quadrupling of oil prices, contributed to stagflation across developed economies, and caused severe stock market declines in 1973–74. Commodity exposure (particularly energy) provided a hedge; bonds and equities did not.

1998 Russian Default. Russia's sovereign default and rouble devaluation triggered the collapse of Long-Term Capital Management and caused a liquidity crisis in developed markets. The lesson: supposedly uncorrelated risks can become correlated in a crisis.

2003 Iraq War. Markets recovered quickly after initial uncertainty. The long-running economic consequences were modest for investors outside the region.

2022 Russia-Ukraine. European energy markets were severely disrupted. European equities underperformed significantly in early 2022. Energy-related and defence equities performed strongly. Gold initially rose but then retreated.

The lessons are consistent: direct exposure to affected regions is dangerous; indirect exposure (through energy, food, and commodity prices) is widespread and difficult to fully avoid; diversification across regions and asset classes remains the primary defence.

Assessing Your Portfolio's Geopolitical Exposure

A structured geopolitical risk review of your portfolio should consider:

Geographic concentration. Do you have significant direct exposure to countries or regions that are currently politically unstable, subject to sanctions risk, or facing significant governance deterioration? Assess both direct investment and indirect exposure through fund holdings.

Currency risk. Which currencies does your portfolio's income and capital depend on? Are any of these subject to capital controls, significant political risk, or potential devaluation?

Sectoral exposure. Energy, defence, semiconductors, rare earth materials, and agricultural commodities are all sectors with significant geopolitical sensitivity. Banks with large emerging market exposure are another area of concentration risk.

Counterparty risk. Where are your assets custodied? If a custodian bank or trading platform is located in a jurisdiction that becomes subject to sanctions or political disruption, what are your contingency options?

Supply chain dependencies. For investors in individual equities or private businesses, assess whether the underlying company's supply chain or customer base is concentrated in politically risky areas.

Practical Portfolio Strategies

Geographic diversification. Spreading assets across politically stable, geographically diverse jurisdictions reduces concentration risk. Developed market equities across North America, Europe, and Asia-Pacific provide a broadly diversified base. Emerging market allocation should be sized in proportion to risk tolerance — not simply chased for yield.

Hard assets. Physical gold, real estate in stable jurisdictions, and commodities have historically provided some protection during geopolitical crises. They are not immune — gold fell significantly during parts of the 2022 crisis — but they often behave differently from financial assets. Physical gold held in allocated storage is accessible even if financial markets freeze.

Currency diversification. Holding assets in multiple currencies — not just your home currency — reduces the impact of a single political event on your overall wealth. For internationally mobile investors already operating across multiple currencies, this is partially achieved through the geographic spread of assets.

Domestic vs international. For investors based in a stable jurisdiction (Switzerland, Singapore, the UK, the UAE), "domestic" assets may paradoxically carry less geopolitical risk than international ones. Overweighting domestic assets is not always wrong in a risk-focused environment.

Reducing emerging market exposure. Many geopolitical risks — sanctions, capital controls, political expropriation — are concentrated in emerging markets. Reducing EM allocation and tilting toward developed market equities may be appropriate in periods of elevated geopolitical tension.

Infrastructure and defence. Listed infrastructure (utilities, toll roads, ports) tends to be less affected by geopolitical events than financial assets — though energy infrastructure has direct exposure to conflict. Defence equities have benefited from elevated spending following the Ukraine conflict.

Scenario Planning for Investors

Rather than attempting to predict specific geopolitical events (an exercise with a very poor track record), focus on scenario planning:

• What would a significant escalation in [X conflict] mean for your portfolio?
• Which assets would be most directly affected?
• What would a sustained period of high commodity prices mean for your income and returns?
• What would a significant devaluation in [X currency] do to your net worth?

For each scenario, identify the most vulnerable parts of your portfolio and whether you are comfortable with that exposure. You may conclude that some concentrated risks are acceptable given your overall circumstances — but the decision should be conscious, not accidental.

International Mobility: A Geopolitical Hedge?

Internationally mobile individuals with assets, businesses, and residence options across multiple jurisdictions are, in a sense, partially hedged against single-jurisdiction political risk. The ability to move assets, residence, and business operations to a different jurisdiction is a genuine optionality that domestically tied individuals do not have.

This optionality has a cost — the complexity of managing multi-jurisdictional assets — and requires forward planning (establishing structures, bank accounts, and residence rights in multiple countries before they are needed). But for HNW individuals with the resources to manage this, international diversification of residency and asset location is itself a form of geopolitical risk management.

How Global Investments Can Help

At Global Investments, we advise internationally mobile clients on building resilient portfolios that can withstand political and economic disruption. We can help you assess your current portfolio's geopolitical exposure, design a diversification strategy across asset classes and jurisdictions, and review your overall financial structure in light of current and emerging political risks. Our expertise spans the UK, UAE, Cyprus, Spain, Thailand, Greece, Egypt, and Bali — and we have direct experience of advising clients through periods of significant market and political turbulence.

This article is for general information only. Geopolitical events are inherently unpredictable. Investment values can fall as well as rise and past performance is not a guide to future returns. Always seek qualified professional advice before making changes to your investment portfolio.