What investors need to know navigating fraught geopolitics

With America, China and Russia making waves geopolitically alongside ongoing regional conflicts in the Middle East, Africa and Asia, how should investors approach a seemingly tense environment? When nations and regions clash, the loss of livelihoods—and life—that often follows is tragic. But when Fisher Investments Australia reviews regional conflicts’ global stock market implications—setting emotions aside—the surprising truth is they often don’t sway stocks materially. To understand why, answering a few simple questions can help investors cut through the noise in seemingly complicated international affairs.

Headlines Fisher Investments Australia reviews often warn world events could possibly topple global stocks. Although anything is possible, markets care most about probabilities. For example, when fighting broke out between India and Pakistan in last May’s four-day skirmish, coverage fretted escalation to full-scale war for the nuclear-armed neighbours. However, this standoff was nothing new, with prior confrontations in 2019, 2016 and at least one every decade stretching back to Britain’s 1947 partition of India. Tensions may heat up, but they have yet to reach the level of a broader conflict involving multiple global actors. So when cross-border attacks inevitably gain attention, ask yourself: How likely are they to ramp up into all-out war that draws aligned parties into a much broader conflagration? Whilst possible, is it probable? More often than not, it falls into the realm of far-fetched speculation.

Another way for investors to analyse geopolitical conflicts: What timeframe do they affect? Some fear geopolitical tensions that could bubble up over years and years. But Fisher Investments Australia’s reviews of markets show their chief interest is how developments may affect sales, earnings or business activity over the next 3 – 30 months. Whilst current conflicts, or looming ones, could conceivably shape firms’ 10-quarter profit outlooks, beyond that is anyone’s guess—and out of markets’ scope.

Besides the likelihood and timing, scale matters, too. How much of global economic activity and earnings are affected? Scaling geopolitical events means weighing the size of countries’ GDPs, markets and industries that are involved. For the local economies and markets hit, fighting that significantly interrupts business can be very bad. But globally? When Fisher Investments Australia reviews such incidents, they typically don’t come close to derailing aggregate world economic activity.

Take Thailand and Cambodia’s brief border war last year. Whilst garnering a fair bit of press, it nominally involved less than half a percent of world GDP—and effectively amounted to far less, lasting under a month and only disrupting a small fraction of their economies.[i] To render a global bear market, a war must wipe trillions of dollars from the economy to reverse the trajectory of worldwide growth. Based on Fisher Investments Australia’s reviews of the historical record, the only one to achieve that scale since good stock market data start is World War II.[ii]

Regional wars, falling short of that, are highly unlikely to end bull markets. Now, Russia’s 2022 invasion of Ukraine did coincide with that year’s global bear market. But based on Fisher Investments Australia’s review of its circumstances, that was one development amongst several that weighed on markets. It occurred alongside massive global supply-chain shocks from pandemic lockdowns, a generational inflation surge and central banks’ abrupt about-face raising rates rapidly to corral those price pressures. Indeed, whilst Russian aggression is still ongoing, with most logistical kinks smoothed out worldwide and inflation returning to normal, the bear market proved shallow and relatively brief. Without a global recession, markets moved on.

Lastly for investors’ consideration: Is the geopolitical concern in question widespread or under most folks’ radar? Whilst markets move most on surprise, anticipation is mitigation. Fisher Investments Australia’s reviews of situations that are widely discussed—from foreign policy journals to the nightly news—find they probably aren’t catching stocks off guard.