By Timothy Flannery
Business Impact Geopolitical risks like conflicts or trade tensions increase stock market volatility. Firms in sectors such as energy or technology see sharper price swings. This makes business planning harder because uncertain policies can raise costs or disrupt supply chains. Business leaders may need to focus on resilient strategies like diversifying operations or hedging against risks to protect profits (Gong et al., 2025; Chatziantoniou et al., 2025).
Financial Impact During geopolitical turbulence stock returns become more unpredictable with stronger cross-market contagion. Investors face higher risks but can find opportunities in safe-haven assets like gold or stable currencies. Portfolios with international exposure could lose value if tensions escalate. Retirement savings in volatile sectors might need rebalancing to reduce losses (Gong et al., 2025; Chatziantoniou et al., 2025).
Political Impact Rising geopolitical risks often lead to policy changes such as tariffs or sanctions which affect global trade. This can slow economic growth in emerging markets and raise borrowing costs. Governments may respond with stimulus or regulations that influence investment flows. Outcomes could shape long-term trade agreements and national security priorities (Adarov et al., 2026).
The Full Story
Three recent studies help explain how geopolitical turbulence affects investing. Gong and colleagues (2025) looked at how geopolitical risks spread across international stock markets. They used a two-layer network model to analyze data from 2010 to 2023. They found that risks like wars or trade disputes create stronger connections between markets. This means a problem in one country can quickly affect stocks in others. The effect is stronger during high-risk periods with volatility spilling over more easily.
Chatziantoniou and others (2025) focused on U.S. sectors. They examined how different types of geopolitical risks impact stock volatility from 1985 to 2023. They discovered that threats like military conflicts raise volatility in energy and defense sectors while economic risks affect finance more. Geopolitical acts have shorter impacts, but threats cause longer uncertainty. This helps investors see which sectors to watch during tense times.
Adarov and team (2026) studied investment in emerging and developing economies. They used data from 2000 to 2025 to show how geopolitical risks slow capital flows and raise borrowing costs. Countries with high risk see less foreign investment which hurts growth. The study suggests diversification and stable policies can help mitigate these effects.
Together these papers show that geopolitical turbulence makes investing riskier but not impossible. By understanding patterns investors can prepare better.
What You Can Do with This Knowledge
This research matters because it shows how world events affect your money. If you invest, consider diversifying across countries and sectors to spread risk. For example, focus on stable assets during high-tension times. If you run a business, build buffers like extra cash or local suppliers to handle disruptions. Stay informed on global news to spot opportunities early. Even small steps like rebalancing your portfolio once a year can help protect your savings in uncertain times.
References
Adarov, A., Kofner, J., & Sahin, S. (2026). Investment in emerging and developing economies: Riding the waves. World Bank Policy Research Working Paper, 10628. https://openknowledge.worldbank.org/handle/10986/42002
Chatziantoniou, I., Filis, G., & Gabauer, D. (2025). U.S. sectoral stock market volatility and geopolitical risk categories. Finance Research Letters, 60, 104938. https://doi.org/10.1016/j.frl.2024.104938
Gong, X. L., Liu, X. H., Xiong, X., & Zhuang, X. T. (2025). Research on the cross-contagion between international stock markets and geopolitical risks: The two-layer network perspective. Financial Innovation, 11(1), 1-26. https://doi.org/10.1186/s40854-024-00687-3
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