From Ukraine To Taiwan – Is Global Geopolitics A Portfolio Risk Now?

Geopolitical tensions—ranging from the Ukraine conflict to Taiwan Strait instability—have emerged as a key systemic risk, shaping the behaviour of global and Indian equity markets.

Key drivers of geopolitical risk primarily remain military assertiveness by global powers, disruption of trade routes, and weaponization of technology and energy supply chains are amplifying volatility. This has a cascading effect on supply chain shocks, energy and commodity price spikes, inflation, and risk-off sentiment in capital markets. Investors flock to safe havens like gold, the US dollar, and US Treasuries.

Overall global & economic response kicks in action where countries are countering risks through friend-shoring, defense expenditure, and tech self-reliance. India, for instance, signed a 5-year DAP fertilizer deal with Saudi Arabia and is promoting domestic chip manufacturing under the PLI scheme.

Geopolitical tensions are front and centre, shaping the new global order and the world we live in. Investors used to acknowledge geopolitical risk, but now they must consider it and factor it in as a real portfolio risk.

Geopolitics In The Driver's Seat: How Wars And Tensions Are Shaping Global Markets?

With the war in Ukraine now in its fourth year and ongoing conflicts in the Middle East and China watching on with tensions over Taiwan, these geopolitical events are having major impacts on the markets. When we see these geopolitical flare-ups, we see investors flock to safe-haven assets such as Gold, US treasuries and currencies such as JPY and CHF, says Ross Maxwell, Global Strategy Lead at VT Markets.

"Commodities are particularly susceptible to these events and we have seen sharp swings and high volatility in Crude Oil, gas, copper and food commodities over supply chain disruptions. This has caused a major realignment in supply chains, global relationships and policy shifts, meaning politics, security, and market sentiment are deeply intertwined," added Ross Maxwell.

It is important for traders to diversify geographically and across asset classes as well as use hedging strategies such as options to diversify risk.

From Defence to Renewables: Where Geopolitical Tensions Could Drive Indian Growth?

Geopolitical risk leads to the weaponisation of trade and technology, using them as strategic tools to advance geopolitical goals rather than purely economic interests. Narender Singh, Smallcase Manager and Founder Growth Investing, says here's how this trend is unfolding across the 4 main strategic levers:

Technology as a Strategic Lever

US-China Tech War, U.S. restricting China's access to cutting-edge chips, AI tools, and semiconductor equipment from companies like NVIDIA, ASML, and TSMC to slow China's military-tech and surveillance capabilities.

Taiwan's TSMC is at the heart of the global chip supply. The West is "friend-shoring" chip manufacturing to countries like India, Japan, and the U.S. to reduce dependence.

AI & Quantum Computing: Nations are racing to dominate AI, with heavy state investments in deep tech, especially from the U.S., EU, China, and India. The tech is dual-use—civil and military—making it a strategic asset.

Trade Restrictions and Sanctions

Energy Sanctions on Russia: Post-Ukraine invasion, Western countries banned Russian oil/gas, disrupting global energy flows. Russia, in turn, redirected oil to India and China, reshaping trade maps.

Tariffs and Export Controls: The U.S. uses export controls on advanced tech; China has retaliated with curbs on rare earth minerals, graphite, and gallium, key to EVs and military gear.

Weaponized Tariffs: Under Trump and Biden, the U.S. has imposed tariffs on Chinese goods not just to protect industry but to weaken strategic rivals.

Supply Chain Realignment

Friend-shoring: Countries now prefer trading with allies. The U.S., Japan, and India are building critical supply chains-semiconductors, defense, green energy-within friendly blocs.

India's Strategy: Through Production-Linked Incentive (PLI) schemes, India is trying to become a hub for electronics, defense, and renewable tech-reducing China-dependence.

Cyber & Data Control

Digital Sovereignty: Nations are building firewalls around sensitive data and networks (e.g., India's data localization, China's internet firewall). Tech firms are being asked to comply with national security rules or face bans.

Concerns among investors remain elevated, as geopolitical risk is now structural-not cyclical-and must be embedded into all portfolio frameworks.

De-globalization is real: Markets once connected are fragmenting.

Sectors at risk: Autos, electronics, pharma, and energy.

Opportunities: Indian defense, renewables, AI, and critical minerals.

Indian sensitivities are primarily in sectors like energy imports, auto & auto component exports, electronics, and fertilizers are most vulnerable. Investors should regularly stress-test portfolios for geopolitical shocks.

From Ukraine To Taiwan: Why Indian Markets Stay Resilient Amid Global Turmoil?

Global geopolitics is a risk factor for markets, but Indian investors have grown more resilient. We have seen this with the Russia-Ukraine war, the Israel-Gaza conflict, and even the Israel-Iran conflict; markets dipped but eventually found their footing. Ceasefires helped restore calm, and the same pattern may play out again. FII outflow in July and now concerns over Taiwan's semiconductor sector after cyberattacks add to the tension.

"But markets never move in one direction. These kinds of global risks often bring temporary setbacks, giving markets a breather or a pause. Once sentiment stabilizes, the rally tends to resume. India still stands on strong ground, government spending is steady, rural recovery is visible, and our macro fundamentals are solid," stated Trivesh D, COO Tradejini.

Geopolitics may shake things globally, especially in trade-sensitive segments, but India is better placed to absorb the shocks. The focus now will gradually shift back to domestic rate transmission and how that drives growth and consumption ahead, says Trivesh D.

Hedging Geopolitical Risk: Smart Portfolio Moves for Volatile Times

Global portfolios today are increasingly vulnerable to geopolitical shocks. Whether it's the Russia-Ukraine war, China-Taiwan tensions, or the Israel-Iran conflict, each event has had ripple effects across global markets—from energy prices and metals to logistics costs and capital flows.

Major powers now routinely use non-military tools such as sanctions, tech bans, supply chain restrictions, and freezing of foreign reserves to assert control. The Russia-Ukraine conflict disrupted Europe's energy grid. The US-China standoff on semiconductors impacted global tech production. The Iran conflict spiked shipping costs and crude oil prices. Each such event can trigger inflation, supply shortages, and FII outflows from emerging markets like India.

Historically, geopolitical shocks have resulted in immediate increases in crude oil, industrial metals, and gold/silver. Depending on how well-diversified an investor's portfolio is, these sectors can serve as both a source of volatility and a potential hedge.

"Global geopolitics is no longer just background noise - it's an active portfolio risk. Whether it's energy disruption, capital flow volatility, or inflation from supply shocks, investors need to treat geopolitics as seriously as interest rates or earnings forecasts. The good news is: this risk can be managed. Sector rotation, commodity exposure, and selective geographic diversification are all effective tools. You don't need to panic - but you do need to prepare," says Mr. Anand K Rathi - Co Founder of MIRA Money.

What Investors Can Do to Hedge This Risk?

• Invest in resilient local industries such as FMCG, utilities, and financials with India-specific earnings.
• Diversify into commodity-linked investments like gold and energy ETFs.
• Investigate areas or industries that are undervalued due to current geopolitical uncertainty.
• Maintain global diversification to reduce concentration risk in any location.
• Increase cash allocations during times of rising global danger.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor GoodReturns. The author, nor the brokerage firm nor GoodReturns would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.