Emerging markets may not be immune to the skewed risk surfaces created by geopolitics, but emerging market equities will still offer important opportunities says James Syme, Senior Fund Manager of the JOHCM Global Emerging Markets Opportunities Fund.
As 2025 closed and 2026 begun, we saw geopolitical risk ratchet higher. Vladimir Putin’s Orthodox Christmas Day declaration that the invasion of Ukraine constitutes a “holy mission,” with Russian soldiers acting “at the Lord’s behest,” was also striking, though it carries less informational value for investors.
Chinese President Xi Jinping delivered a New Year’s Eve address in which he forcefully reiterated China’s territorial claim to Taiwan, declaring that “the reunification of our motherland, a trend of the times, is unstoppable.” His remarks came amid the Chinese military’s largest-ever live-fire exercise around Taiwan, dubbed “Justice Mission.”
Meanwhile, on the 3rd of January, U.S. military forces captured Venezuelan President Nicolás Maduro, plunging the country into political uncertainty. While the contours of any successor system remain unclear, the episode signals a loss of sovereign control over Venezuela’s oil reserves.
Financial markets are beginning to price in the erosion of the post-1945 rules-based global order, as superpower behaviour increasingly signals that the old constraints no longer apply. Geopolitical left-tail risks are steadily fattening.
The end of 2025 and the start of 2026 have seen both risk assets and traditional safe havens rally strongly. Continued optimism around technology, alongside expectations of Federal Reserve interest-rate cuts, has supported risk appetite. At the same time, investors appear increasingly conscious of the need to diversify into hedges and defensive assets.
After the Russian invasion of Ukraine in 2022, we observed that only a small number of equity markets have gone to zero in the lifetime of emerging market equities as an asset class (since the late 1980s). That number, however, rises markedly when the pre-1945 period is included.
Superpower behaviour is becoming more unilateral, mercantilist, and transactional, and less constrained by post–World War II norms, with priority given to commerce, territory, and resources. The world increasingly resembles the late-nineteenth and early-twentieth century, when gunboat diplomacy, colonialism, and military conflicts created the conditions for markets to go to zero.
Most of the world’s risk hotspots are in emerging markets. In emerging equity and currency markets, volatility can stay low while events do not affect the economic prospects or tradability of markets. Recent performance illustrates this dynamic: Taiwanese equities and Venezuelan bonds have both rallied in recent weeks.
However, when investor sentiment turns, liquidity can evaporate quickly, leaving many sellers and few bidders. As we noted in 2022, a shift toward a more dangerous global environment offers no net positive news for investors.
The definitions of ‘hedge’ and ‘safe haven’ are also dynamic. Gold has been a clear winner in the last year, despite the absence of an actual crisis, because it has no dependence on payments systems.
Currencies and sovereign bonds are more complicated. The US dollar and US treasuries may be a haven during a crisis in Asia yet may not be during a crisis in the Americas: sanctions and disinvestment might force large investors into or out of particular currency and bond markets.
Emerging markets may not be immune to the skewed risk surfaces created by geopolitics, but emerging market equities will still offer important opportunities. On the upside, the asset class contains significant positive exposure to semiconductors, to a weaker US dollar, and to higher gold prices.
In the risk tails, emerging markets offer large, liquid markets in countries with high degrees of geopolitical defensiveness. Our portfolio contains exposure to all these themes and is positioned to participate across a wide range of potential outcomes, balancing upside participation with resilience in more adverse scenarios.
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: kyle-glenn-nXt5HtLmlgE-unsplash
