Markets have remained remarkably resilient despite geopolitical tensions and growing economic uncertainty. Ian Rees, Head of Multi Manager Funds at Premier Miton, explores whether investors are paying enough attention to the risks building beneath the surface.
Are you taking too much investment risk? This is a simple but inaccurate question to pose, given the need to qualify the ‘risk(s)’ investors are being exposed to.
Traditionally, long-term investors viewed investment risk as a function of the investment time horizon. The longer the horizon, the greater the tolerance of stock market gyrations and drawdowns can be.
Historical market charts appear to support this view, showing that even severe short-term market declines become relatively minor when viewed over decades.
This provides useful evidence to encourage investors to focus on the long term and avoid the distraction of temporary market setbacks.
Yet this remains a very insightful question in seeking to raise awareness in recognising and understanding the full extent of risks investors face today.
For investors who view risk as the measure of market volatility, the VIX Index is a commonly used metric that points to the expected stock volatility in the US equity market.
This index would suggest there has been little to fear in recent years, apart from a brief spike during the market sell-off in April 2025. The relatively muted levels suggest that investors are broadly comfortable with the outlook, affirming that a high equity exposure has been a successful strategy to employ over this period.
Despite this calm market backdrop, there has been a continual stream of political and geopolitical concerns dominating the headlines.
The market has largely shrugged these off, affirming the historical precedence that news events and geopolitical concerns can mostly be seen as ‘noise’ that have little lasting impact on stock markets.
Following the invasion of Ukraine and the more volatile geopolitical backdrop since, the resilience of stock markets is something we have written about in recent years.
However, not all events should be readily dismissed. The bold and volatile US policy approach of President Trump has caused two significant developments.
The first saw the introduction of extensive tariffs unveiled as ‘Liberation Day’ in 2025. While political posturing and trade disputes are not uncommon, the scale of the proposed tariffs was greater than any seen since the Great Depression of the 1930’s.
The spectre of a global trade war created genuine uncertainty regarding economic growth and corporate profitability.
The second major concern has been the conflict involving the US and Iran. While most wars prove themselves to be ‘noise’, this situation carries particular significance due to Iran’s strategic position and influence over energy markets.
Iran’s role in the Strait of Hormuz, a critical shipping route for oil and other commodities, poses a threat to global trade and the oil price that can have far-reaching consequences for inflation and economic growth worldwide.
While either event is worrying on their own, the combination of both presents a challenging environment to navigate. Given the severity of consequences that can emerge, it is surprising that stock markets have been able to largely ignore these threats.
Unexpectedly strong corporate earnings have proved the necessary distraction in allowing stock markets to deliver impressive returns. This has seen the Bloomberg Global World Large-Mid Index delivering more than 60%* over the three years to August 2026 and reaching new highs in the process.
However, strong recent performance can create a false sense of security, causing investors to underestimate the scope of risks they are exposed to.
Beyond these geopolitical issues, several additional risks have emerged. Inflation pressures have become elevated, partly due to fluctuations in oil and energy prices, supply chain diversification causing added cost, or the retreat of globalisation as firms seek to restructure operations abroad for more domestic facilities (‘reshoring’) or friendlier jurisdictions (‘friendshoring’).
At the same time, rising government deficits result in increased borrowing requirements through issuing bonds. These government financing needs coincide with substantial bond issuance from technology companies funding large-scale artificial intelligence investments.
Together, these developments raise concerns about an oversupply of bonds and increase pressure on bond markets.
Bond markets are often an important risk indicator of broader financial risks because they provide liquidity and funding to the global economy. Rising bond yields, which reflect falling bond prices, suggest increasing concerns in fixed income markets.
Yet equity markets have continued to perform strongly despite these warning signs. This divergence may indicate that investors are not paying sufficient attention to such signals.
Another concern is the growing concentration within stock market indices. Performance has increasingly been driven by a relatively small number of large companies, creating a narrower market leadership profile.
While this concentration can amplify gains when these companies continue to perform well, it also increases vulnerability if sentiment reverses.
Passive investors face greater concentration risk than has been the case historically. Deliberate diversification remains an important safeguard against such an outcome.
While investors who have embraced risk in recent years have been rewarded with strong returns, successful outcomes do not necessarily mean the underlying decisions were prudent.
It is important to distinguish between performance delivered from robust investment processes and those resulting from favourable circumstances or luck.
With heightened uncertainty, multiple geopolitical threats, changing economic conditions, and increasing market concentration, it is crucial for investors to remain aware of the risks being taken.
A more volatile environment with greater divergence in returns across sectors and asset classes, is likely to provide opportunities for skilled and disciplined active managers who can identify risks and allocate capital selectively.
*Source: FE Analytics, from 31.08.2023 – 31.08.2026.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
Main image: door, dark, uncertain, risk, kamil-feczko-GhxWry42_zQ-unsplash
