How Should Portfolios Be Positioned in a Period of Rising Geopolitical Tension?

Just a few weeks into the new year, it’s already clear that much of the traditional economic and political playbook no longer applies.

We are living in a fundamentally different world from the one that shaped the last major geopolitical cycle. The global landscape is increasingly shifting toward what appears to be a three-pillar structure:

• The Western hemisphere

• The Asia-Pacific region

• Europe and the Middle East

These evolving blocs influence trade, regulation, technology, supply chains, and capital flows and, in turn, they reshape how investors should think about risk.

In this environment, geopolitical tension is no longer background noise.

It’s a core variable. 

Why Asset Allocation Matters More Than Ever 

As the world becomes harder to predict at a micro level, the most important question becomes simpler:

“Is my portfolio aligned with my true risk tolerance?” 

Investors cannot control: 

• Political outcomes 

• Market reactions 

• Timing of shocks 

• Behaviour of individual assets 

What they can control is the structure of their wealth.

This is why strategic asset allocation is paramount, especially now. Asset allocation creates a buffer between you and volatility. It is the one part of investing that remains within your control, regardless of what the geopolitical cycle produces. 

Everyone will have an opinion.

Everyone will recommend a strategy that “worked for them,” but it is your wealth, your risk of tolerance, and your story. Asset allocation should reflect that, not someone else’s comfort level. 

Filtering the Noise 

For clients who feel overwhelmed by conflicting commentary, this is where an adviser plays a crucial role. 

A good adviser doesn’t guess. 
A good adviser filters. 

They sift through global investment options, research, and structures to determine which combinations align with the client’s long-term position, not with short-term narratives or market noise. 

Personal Considerations in This Environment 

Given the current political and economic backdrop, I am adding an additional layer to my own asset allocation: a tilt informed by geopolitical risk. 

This is not a prediction; it is an observation of the world as it is. 

Research such as: “Volatility Modelling of the Impact of Geopolitical Risk on Commodity Markets” continues to demonstrate the relationship between geopolitical shocks and commodity behaviour. 

Historical trend shows a preference for physical assets during shock events. That said, we remain in uncharted territory. The simultaneity of multiple geopolitical tensions (U.S.-Iran, U.S.-Venezuela, activity in the Arctic regions and Greenland, and more) makes any single positioning approach difficult to rely on without nuance. 

AI and crypto also add complexity. Academic work such as: 

“Sentiment and Volatility in Financial Markets: A Review of BERT and GARCH Applications During Geopolitical Crises” provides further insight into how sentiment-driven models interact with modern market behaviour. 

We are entering a period where technology, geopolitics, and capital markets are deeply intertwined. 

What Clients Need to Hear (And What They Don’t) 

It’s common to hear phrases such as “markets will always recover” and that “long-term everything will be fine.” This is comforting, but it is not always sufficient. 

A more meaningful response perhaps may be  “Let’s ensure your asset allocation is built for this environment: evidence-based, resilient, and tailored to your risk capacity.” 

This approach: 

• acknowledges uncertainty 

• incorporates global events 

• respects emotional and financial realities 

• provides genuine confidence 

• reflects how sophisticated families make decisions 

We must take the role of asset allocation in portfolio construction seriously integrating geopolitical behaviour, economic cycles, and market psychology into the conversation. 

Reassurance alone is no longer enough. 

Clarity, discipline, and alignment are. 

Important:

Karam Singh, Authorised Representative of Capella Advisory Pty Ltd ABN 54 669 300 163 AFSL no. 550125.

He can be reached at ksingh@ekprivate.com.au or 1300 193 136

The information in this publication is factual information, and not financial advice. The information is objectively ascertainable information and is not tailored to your personal circumstances. You should consider obtaining financial advice before making a decision in relation to this information.