Juliet Schooling Latter, research director at FundCalibre, examines why geopolitical events are having a more lasting impact on markets, challenging the long-held belief that investors can simply look through short-term turmoil.
The prevailing view from many fund managers is that geopolitics tends to come out in the wash. While wars, political upsets or trading disruption can cause market volatility in the short term, they do not tend to be the key influence for share prices in the long term. The war in Iran appears to support this view – it briefly disrupted stock markets, before investors decided that the AI trade was more important.
However, on closer examination, the past 18 months have rattled this cosy view. US tariffs created difficult problems for specific sectors, such as pharmaceuticals, beverage companies or autos.
The war in Iran may have had minimal effect on equity markets, but it played havoc with the bond markets, as rising oil prices pushed up inflation expectations.
Resource nationalism has driven commodity prices higher, as countries have scrambled to secure access to mission-critical metals.
Neil Robson, manager of the CT Global Focus fund, says this geopolitical uncertainty is likely to persist: “Trade, inflation and interest rates remain risks to watch, while further supply chain disruption, persistent inflation and tighter monetary policy could unsettle near-term sentiment.”
The current US president does not appear to recognise historic allegiances. The house view at Jupiter Asset Management is that the National Security Strategy for the United States of America, launched at the end of 2025, prescribes a wholly different perspective.
Alastair Irvine, investment director on the Jupiter Merlin funds team, which manages the Jupiter Merlin Income Portfolio, says: “It is one seen self-centredly through the American lens and in the American interest. It is an abrogation of international responsibilities.
“Neither partnership, diplomacy nor kumbaya is in Trump’s political DNA. His patience with what should be America’s allies is as thin and febrile as his tolerance and indulgence of Vladimir Putin are unfathomable and deeply troubling. Like a volatile unguided Exocet, on the global stage it is difficult to know where he will explode next and to what effect.”
He points out that Trump has alienated his NATO allies, undermined Israel, the country Iran and its proxies vow to see eviscerated and eradicated: “American military power has been exposed as limited, leaden and one-dimensional.”
This new reality is having a real-world effect on the way companies source materials, use power and innovate. Robson adds: “We are seeing a shift from a ‘just-in-time’ supply model toward one focused on ‘security of supply’. Governments that once cooperated within a mutually beneficial system are now more concerned with securing individual gains. Tariffs, reshoring mandates, semiconductor export controls – these all reflect global powers recalibrating to a new reality.”
It is also having an impact on inflation expectations. Tariffs, the Middle East conflict and resource nationalism have all had an impact on prices. Most major developed economies are maxed out on debt – from Japan (204% debt to GDP), the US (126%) through to France (118%) and the UK (104%)*.
This means governments are ‘in hock’ to bond markets, whether they like it or not. Bond markets are hair-trigger responsive to government policy, constraining decision-making. This is particularly true for countries such as the UK that rely on international investors to buy their debt.
Commodities markets are also responsive to geopolitics. There have been two major energy shocks in four years. The desire for energy independence is fuelling a vast spending programme as governments seek to electrify their economies and reduce vulnerability.
This is creating opportunities for fund managers. The JOHCM Global Opportunities fund, for example, has been leaning into this trend with holdings in areas such as Australian petroleum exploration and production company Woodside Energy, energy technology company Baker Hughes or industrial equipment group Emerson**.
All this points to an environment where investors need to have some defences against geopolitical instability. There are no perfect hedges. For example, gold had proved a decent hedge against a weaker dollar and the ebbing of US exceptionalism, but has been disappointing during the recent crisis in Iran.
Nevertheless, Evy Hambro, manager of the BlackRock World Mining Trust, says it is worth maintaining some exposure: “The key is to have a balanced allocation in your portfolio. You need to decide on the right percentage for you and try to keep that percentage steady over time.
You take a bit of profit when it’s done well. It is always cyclical. There are points when it’s in fashion and when it’s out of fashion – on average it should preserve purchasing power over time. It’s been a good store of value.” Commodities in general should provide some protection: rising commodity prices are often a response to geopolitical instability.
It also suggests that investors need some caution on bonds. In particular, investors need to be careful in assuming that government bonds will diversify equity market volatility during periods of geopolitics-induced high inflation. This argues for holding areas such as infrastructure alongside bonds to diversify a portfolio.
The final factor may be to take equity opportunities where they appear. There may be opportunities in defence spending, for example. The Economics Observatory points out that European defence spending increased from €343 billion in 2024 to €381 billion in 2025, as it has been forced to re-arm in response to the Russian threat and the US withdrawal of military support***.
This has seen significant gains for defence companies, and it remains a sector that fund managers find attractive. Rob Lancastle, co-manager of the JOHCM Global Opportunities fund, says: “This structural growth has got a long way to go, and we’ve seen that in order books, which will flow through in revenue growth going forward.”
Geopolitical uncertainty appears to be here to stay and it is having a real-world effect on companies. The traditional strategy of simply looking through it may not be as effective. Geopolitical considerations may need to feed into asset allocation and equity positioning to defend portfolios against volatility.
*Source: IMF, General government gross debt as percentage of GDP, 2026
**Source: JOHCM, June 2026
***Source: Economics Observatory, 12 November 2025
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: geopolitics, basma-alghali-7EkkL7ODPfc-unsplash
