Geopolitical tensions have dominated headlines in early 2026, from US-Europe tariff threats to developments involving Iran, Venezuela and the Arctic region. Against such a backdrop, it’s natural to question whether this year’s political uncertainty could meaningfully disrupt global markets. Based on recent market behaviour and fundamentals, we believe the longer-term impact could be limited.
Markets reacting more calmly to geopolitical events
Markets appear to be reacting less dramatically to geopolitical news than in previous cycles.
Global equities have remained near record levels even with events in Venezuela and Iran, as well as geopolitical tension over the Arctic region. Investors appear to be focusing more on fundamentals like steady economic growth rather than geopolitical noise.
A brief sell-off following US-Europe tariff threats in January was quickly reversed, revealing a less turbulent market response. This resilient pattern suggests that while headlines may cause short-term noise, they’re unlikely to derail broader market trends in our view.
Robust underlying economic and corporate fundamentals
Structural growth drivers, resilient corporate earnings, and diversified global supply chains continue to underpin equity markets. Even with heightened tensions, many companies remain profitable and economically supported. Key markets – including Japan, Europe, the UK and emerging markets – are entering 2026 from a position of strength following robust 2025 performance. This can create a buffer against near-term shocks.
Global diversification softening the impact of localised risks
Not all regions react equally to the same political developments. For example, while the US, UK and Europe experienced short-lived falls following tariff headlines, other regions less directly affected held up well – helping global indices remain steady overall.
Emerging markets, in particular, continued to show resilience in 2025 and may again provide useful diversification benefits this year.
The nature of today’s risks is more known than new
Investors have been living with heightened geopolitical risk, like trade wars, elections, global tensions and supply chain shocks, for several years and have adapted accordingly. As a result, investors may have become less sensitive to them, unless a genuinely new escalation occurs or there is evidence of meaningful economic impact.
Policy response and central bank behaviour provide some stability
Bond and currency market reactions to recent events have been comparatively muted. For example, government bond yields moved only marginally after US tariff announcements, suggesting investors do not expect a major growth shock.
Recent interest rate cuts across several major central banks also provides support. Lower policy rates often underpin equity valuations and can mitigate the impact of political disruption.
Long-term investing principles still hold true
Taking a long-term view helps smooth out the effects of short-term volatility. Even when geopolitical tensions temporarily unsettle markets, fundamentals usually eventually reassert themselves – and this has been true across decades of market history.
Short-term shocks are part of investing. But they rarely alter long-term market trajectories unless they result in structural, persistent economic change, which we do not currently expect.
What we’re doing on the back of the geopolitical uncertainty
We monitor developments such as geopolitical tensions closely, with a focus on how they may change the medium-term investment landscape and the risks and opportunities that emerge as markets look to rationalise changes to geopolitical conditions.
More specifically, we’re assessing the likely impact and the scenarios around any structural changes, how this may filter into any macroeconomic inputs such as growth and inflation. These feed into our capital market assumptions on how we think about long-term expected market returns on asset classes and subsequently our strategic asset allocation approach.
Where we identify any potential strategic asset allocation changes, we’ll only make them if they’re expected to materially improve customer outcomes, taking account of factors such as transaction costs. Assessing asset allocations under a range of market conditions and scenarios forms a vital part of our investment process.
We’re also in constant dialogue with our appointed investment managers to ensure we stay abreast of unfolding conditions and take into consideration any dynamic market views.
We must remain disciplined as long-term investors. We don’t make short-term changes solely based on sudden shifts in shorter-term market sentiment alone.
Our funds are built on a disciplined, diversified strategy designed to withstand periods of uncertainty, and we remain confident in their ability to deliver strong outcomes over time.
Conclusion: Cautious, not alarmed
Geopolitical tensions will almost certainly continue to create headlines this year. Markets will wobble at times, and short-term volatility is to be expected. But based on the evidence available – rational market reactions, robust fundamentals, global diversification, muted policy responses and historical resilience – we do not expect these tensions to dramatically alter long-term market trajectories.
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