Geo-Political Tensions
Geopolitical shocks have been a rising feature this past year, with US “interventions” in various countries – Nigeria, Venezuela, Greenland and now Iran. They add to existing tensions – the ongoing US-China rivalry and the Russia-Ukraine conflict. The key aspects of the current geopolitical tensions are:
- Supply Chain & Commodity Impact: The conflict in Iran/Middle East has affected shipping routes, as well as oil prices and consequently global energy costs.
- Financial Market Volatility: Geopolitical tensions directly influence market sentiment and are primary drivers of sharemarket volatility. They also impact currency values.
- Shipping, Airspace & Logistics: Heightened tensions continue to cause shipping delays, leading to higher freight costs. Airspace disruption has been significant. Large parts of Middle Eastern airspace are effectively shut to civilian flights.
- Economic Fragmentation: Protectionist policies have risen, with new trade restrictions more than tripling since 2019. Trade between opposing geopolitical blocs (e.g., China-USA) is contracting considerably.
Some important things for investors to bear in mind, during times of uncertainty like these, are to focus on basic investment principles, in particular:
- Share market pullbacks are healthy and normal – it’s the price we pay for the higher returns provided over the long term.
- It’s very hard to time market moves, so the key is to stick to an appropriate long-term investment strategy.
- To avoid getting thrown off a long-term strategy – it’s best to turn down the noise around all the negative news flow.
Diversification remains a cornerstone of our investment approach. Spreading investments across various asset classes, means that our clients’ portfolios are not overdependent on strong returns from a handful of assets for performance. Instead, returns are accumulated from multiple sources.
Boris Pedisic CFP®
Representative (No 301739)
