Geo-politics’ is a term used to describe countries and their relationships. It’s fair to say we’ve seen an increase in challenging political landscapes and strained relationships between a lot of countries. Of all the factors that influence investment markets, geo-politics is becoming increasingly difficult to navigate. Many developments are slow moving, often happening in the shadows, but tensions can escalate suddenly which can cause disruption to global markets.
After a long period of relative stability, the past two years have been marked by a worrying rise in tensions and conflict. The most high profile conflicts being Russia’s invasion of Ukraine, the current events in Israel and Palestine and rising tensions within the Middle East. As well as the tragic loss of life and humanitarian crisis caused by these events, they also threaten global trade patterns. For example, the supply of gas from Russia to other European countries, shortages of goods and industrial materials which can slow down things like advancements in technology and scientific developments.
However, despite the unrest, the rise of globalisation has helped to bring some peace as economic incentives are often favoured over political agendas.
The growing rivalry between the world’s largest two economic and military superpowers has gathered momentum in recent years as the Trump administration limited foreign trade competition by introducing trade tariffs and sanctions. Whilst there has been hope of de-escalation under the Biden administration, many of the measures previously introduced against China remain in place.
In response to the measures China attempts to prevent access to key strategic technologies and industries. As demonstrated by the recent US vote to ban Chinese owned Tik Tok from operating in the US and China’s ban on use of Intel and AMD chips in government personal computer’s and servers.
Of course it’s impossible to predict the future, but with the 2024 US elections coming up in November, it’s important to think about what might happen and how markets may be affected. In the past decade, presidents have historically tried to present their flagship policies early in their term due to the narrow windows for legislation to be passed in the US.
Regardless of who wins, we expect a wave of new legislation in 2025, expecting both candidates to continue spending and borrowing.
If Biden wins – we’re likely to see a focus on building alliances abroad.
If Trump's triumphant – foreign policy could change with the US pulling back international diplomacy. Laws have been changed to prevent Trump withdrawing the US from the North Atlantic Treaty Organisation (NATO), although he could still undermine it in other ways such as not providing funding.
If Trump is re-elected then we expect increased volatility and unpredictability. That said, even with Biden continuing for a second term we’re still likely to face a volatile environment.
Investors often flock to government bonds in times of extreme uncertainty, and we've seen increased exposure in the last few years.
Commodities can also show positive performance against a landscape of geopolitical tension where conflicts and sanctions put supply at risk.
There’s also one potential silver lining: there has been greater divergence in economies recently – most notably in economic growth and inflation. If this trend continues, it could make it easier to diversify portfolios and help spread the risks.
)Access all our articles and search the provider directory for free.