Investing During Geopolitical Uncertainty: A Practical Guide for International Investors

Geopolitical uncertainty has become a near-constant feature of global markets. The Russia-Ukraine war, persistent Middle East conflict, US-China decoupling, the re-emergence of populist trade policy — all of these create genuine economic consequences and real investor anxiety.

For internationally mobile, high-net-worth investors, geopolitical risk is not merely an abstract concern. It can affect the value of specific assets, the availability of capital flows, the currencies in which wealth is held, and the jurisdictions where wealth can be safely domiciled.

This guide examines what the evidence actually says about how markets respond to geopolitical events, which assets tend to perform well in periods of uncertainty, and how to make portfolio adjustments that are grounded in evidence rather than anxiety.

The Geopolitical Risk Landscape in 2026

The main geopolitical risk factors as of mid-2026 include:

US-China tensions: The decoupling of US and Chinese technology supply chains has accelerated. Tariffs on Chinese goods imposed from 2025 under the second Trump administration are significant; retaliatory Chinese measures affect US exports. The Taiwan question remains unresolved and represents a potential flash point with severe market consequences if it moves from diplomatic tension to military confrontation.

Middle East: The aftermath of the 2023-2024 conflict continues to reshape energy and trade flows in the region. Houthi disruption to Red Sea shipping has increased global shipping costs and rerouted cargo around the Cape of Good Hope. Iran's nuclear programme remains a source of periodic market anxiety.

European security: The Russia-Ukraine war, now in its fifth year since Russia's full-scale invasion in February 2022, continues. NATO has expanded, European defence budgets have risen sharply, and the energy dependence of European industry on Russian gas has been substantially restructured — with ongoing economic cost. Germany's industrial base has been affected more severely than most markets anticipated.

Trade policy fragmentation: The multilateral trading system has weakened significantly. Bilateral deals, tariff walls, and "friend-shoring" supply chains are replacing the WTO-anchored free-trade architecture that dominated the post-Cold War period. This is inflationary over the long term.

What the Evidence Says About Market Reactions

The natural investor instinct during a geopolitical event is to sell first and ask questions later. The evidence suggests this is usually the wrong response.

Looking at major geopolitical events over the last 75 years — the Korean War, the Cuban Missile Crisis, the 1973 Oil Shock, the 1991 Gulf War, 9/11, the 2003 Iraq invasion, the 2008 financial crisis, the 2022 Ukraine invasion — the pattern is remarkably consistent: markets react sharply and immediately to the news, then recover.

9/11 caused the S&P 500 to fall approximately 12% in the week markets reopened. Within a month, the market had recovered most of the loss. An investor who sold on 12 September 2001 and waited for "certainty" to return before reinvesting — and certainty did not return, as the next two years brought further terror attacks, corporate scandals, and the Iraq invasion — underperformed dramatically versus an investor who held throughout.

The 2022 Russia-Ukraine invasion provides a more nuanced example. Equity markets fell sharply in February 2022 — but recovered quickly. What did not recover quickly was European energy prices, which remained elevated for over a year. An investor who exited all equities in February 2022 missed significant gains in energy stocks, defence stocks, and commodity-linked securities in 2022.

The lesson is not that geopolitical events do not matter. They do. The lesson is that the immediate market reaction — which is driven by fear and uncertainty — frequently overshoots, and that specific sectors and asset classes respond very differently.

Assets That Tend to Outperform During Geopolitical Stress

Gold: The classic safe haven. Gold has no counterparty risk, cannot be sanctioned (it is a physical asset), and has historically attracted capital flows during periods of elevated uncertainty. Gold surpassed $2,400/oz in 2024 and has continued rising, driven by central bank buying (particularly emerging market central banks reducing USD reserves) and persistent geopolitical uncertainty; by mid-2026 spot gold trades above $4,000/oz. A 5-10% allocation to gold is a reasonable diversifier — not as a return driver, but as portfolio insurance.

Defence sector equities: European defence companies — Rheinmetall, BAE Systems, Thales, Leonardo — saw exceptional returns in 2022-2024 as European defence budgets rose sharply. This is a genuine structural shift: European governments have committed to higher defence spending for the foreseeable future, and the Russian threat has removed the post-Cold War "peace dividend" that had suppressed defence budgets for thirty years. The valuation re-rating in this sector has already happened to a significant degree, but the earnings trajectory remains supportive.

Energy producers: Geopolitical disruption to energy supply is a windfall for producers. The Russia-Ukraine war confirmed this: Saudi Aramco, TotalEnergies, Shell, and BP all generated exceptional profits in 2022-2023. In a world where energy supply is increasingly a national security consideration, major energy producers retain structural pricing power.

US Treasuries and USD: In a genuine crisis, USD-denominated assets benefit from safe-haven flows. The US dollar tends to appreciate in risk-off environments. This is one of the reasons why a diversified portfolio should maintain some USD exposure even for non-US investors — the currency tends to perform well exactly when other assets are performing badly.

Assets That Tend to Underperform

Small, open economies heavily dependent on trade: Countries whose growth models depend on integrated global supply chains are most exposed to geopolitical fragmentation. Taiwan, South Korea, the Netherlands, Singapore — all highly trade-dependent — are more vulnerable than more self-sufficient large economies.

Emerging markets with political risk: Where geopolitical uncertainty coincides with domestic political instability, the combination can be severe. Russia (after February 2022, equities effectively went to zero for foreign investors), Pakistan, and Argentina are cautionary tales about the importance of governance in the risk premium.

Long-duration bonds in inflationary geopolitical environments: Geopolitical disruption is frequently inflationary (supply chain disruption, energy price increases, defence spending increases). Inflation is the enemy of long-duration bonds. The 2022 bond market selloff — the worst in decades — was partly driven by the inflationary consequences of the Ukraine war.

Practical Portfolio Adjustments

For investors with a long time horizon, the most important geopolitical risk response is diversification, not prediction.

Geographic diversification: A portfolio concentrated in a single region is significantly more exposed to that region's specific geopolitical risks. A genuinely global portfolio — including exposure to Asia, the Gulf, Latin America, and multiple European markets — means that any single geopolitical event is less likely to affect the whole.

Sector diversification: The sectors that benefit from geopolitical risk (energy, defence, materials, gold) are also the sectors that underperform in benign environments. Holding them consistently — rather than trying to time entries and exits around geopolitical headlines — captures the insurance value without requiring successful prediction.

Currency diversification: For UK-based investors, holding assets denominated in USD, EUR, SGD, and CHF alongside GBP provides protection against the specific geopolitical risk of a GBP depreciation event.

Liquidity management: In genuinely extreme geopolitical scenarios, liquidity dries up. Maintaining a proportion of the portfolio in highly liquid assets — short-term government bonds, money market funds — ensures you are not a forced seller of illiquid assets at the worst possible time.

How Global Investments Can Help

Navigating geopolitical risk requires a portfolio structure that is resilient across multiple scenarios rather than optimised for any single outcome. Global Investments helps internationally mobile individuals build and maintain portfolios that balance growth with genuine diversification across geographies, asset classes, and currencies.

We draw on research and commentary from investment managers across our network to ensure your portfolio positioning reflects the current risk environment without abandoning long-term discipline.

This article is for general information purposes only and does not constitute personal investment advice. The value of investments and the income from them can fall as well as rise. Past performance is not a reliable guide to future performance. Please take professional advice before making investment decisions.