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INVESTMENT STRATEGY QUARTERLY

Competition and Conflict: Market Impacts of Rising

Geopolitical Risk

Ed Mills, Managing Director, Washington Policy Analyst, Equity Research

Markets are navigating a new global era. US-China tensions,
COVID, and the war in Ukraine have highlighted that An optimistic assessment sees the war de-escalate
geopolitical risks are on the rise and becoming a more toward a potential ceasefire and the beginning of a
prominent part of the macro investment decision-making resolution process around the third quarter, but we
process. 24 February marked one year since Russia’s caution that the first half of this year will continue to
see a heightened risk of escalation...
invasion of Ukraine, prompting policymakers and investors
to take stock of how the conflict has progressed, how it
could begin to wind down, and what risks remain. The back over the last year, the war’s macro impact on the market and
COVID-19 pandemic exposed domestic capability/ global economy has elevated geopolitical risk premiums and
production gaps, increasing focus on resiliency (and threatened disruptions for key global commodities. The two most
changing US industrial policy). The US-China relationship impacted areas have been energy and defence—a trend we expect
has raised concerns about a ‘new Cold War’ and a to continue. As we move into year two, attention will focus on
whether an off-ramp becomes clearer and market pressures ease,
decoupling of the world’s two largest economies. These or if the larger geopolitical risk premium is here to stay. An
national security issues have been increasingly difficult for optimistic assessment sees the war de-escalate toward a potential
investors to manage and deserve continued attention. ceasefire and the beginning of a resolution process around the
third quarter, but we caution that the first half of this year will
continue to see a heightened risk of escalation that can drive
RUSSIA-UKRAINE WAR
periods of volatility.
A new major land war in Europe has renewed concerns over
‘great power’ conflicts versus the regional threats that the world Ukraine’s armed forces have reclaimed about 50% of territory
and markets have navigated in the post-World War II era. Looking captured by Russia. The success and stability of Ukraine’s defence—

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