A Divided World: Investing in an Era Where Politics Moves Markets

The world investors once understood is evolving. Globalisation is giving way to a more complex, fragmented landscape shaped by politics, national priorities, and shifting alliances. The key is learning how to navigate this changing environment.

For decades, investing followed a straightforward logic: economics led, markets followed. Growth accelerated, earnings improved, interest rates shifted, and asset prices responded accordingly. Countries focused on what they did best, supply chains stretched across continents, and capital moved freely in search of opportunity.

That environment has become more complex. Today, geopolitics is no longer a secondary consideration. It is increasingly influencing where factories are built, how supply chains are structured, where capital flows, and how investors assess risk. Trade tensions, sanctions, regional conflicts, and strategic rivalries are no longer distant headlines. They are becoming part of the investment landscape.

Read behind the headlines

Investors traditionally focus on earnings, inflation, and interest rates. Those factors remain important, but geopolitical developments can now move markets with equal speed. A new tariff can reshape an industry. Export controls can disrupt technology supply chains. Conflict in an energy-producing region can push oil prices higher and revive inflation concerns.

This was evident in early 2022, when Russia’s invasion of Ukraine triggered a sharp rise in energy and commodity prices. Global equities weakened, bond markets came under pressure, and sector leadership changed quickly. Energy-related companies outperformed, while many growth-oriented sectors struggled as higher inflation expectations led investors to reassess interest rate risks.

We see it again in the recent US-Iran conflict. The key lesson here? Markets don’t just respond to headlines. They respond to the economic consequences behind those headlines.

Source: Bloomberg as at 24 April 2026 from 1 October 2021 - 24 April 2026.

The highlighted periods show how major geopolitical conflicts can trigger sharp market reactions, particularly when they threaten energy supply or raise inflation concerns. In both February 2022 and February 2026, rising uncertainty was accompanied by significant moves in oil prices and shifts in investor sentiment, illustrating how geopolitics can quickly spill into financial markets.

The real impact of geopolitics

Geopolitical events often feel unprecedented in the moment, yet market reactions frequently follow a recognisable pattern.

The first phase is usually driven by uncertainty. Equities may sell off, gold often strengthens, and investors tend to rotate into defensive assets or the US dollar.

The second phase is more important. Investors begin asking whether global growth is genuinely at risk, whether oil prices are likely to remain elevated, whether central banks may need to respond, and whether company earnings are likely to be materially affected.

That reassessment often determines whether a market pullback is temporary or prolonged.

Many geopolitical sell-offs have historically proven short-lived once investors concluded that the broader economy remained resilient. Others, particularly those linked to energy shocks or inflation, have taken longer to recover.

The Russia-Ukraine conflict in 2022 stood out because it coincided with already elevated inflation and aggressive interest-rate tightening. Recovery was therefore more uneven than in many earlier geopolitical episodes.

A new investment map

Geopolitics is also reshaping where opportunities may emerge. Companies are increasingly diversifying their production bases and reducing dependence on single-country supply chains. This has brought greater investor attention to markets viewed as stable, competitive, strategically positioned, and more or less on the same political wavelength.

India is benefiting from manufacturing expansion and strong domestic demand. Across ASEAN, economies such as Malaysia, Vietnam, and Thailand are attracting interest as supply chains broaden beyond China. Malaysia remains deeply integrated into global trade. According to MATRADE (Malaysia External Trade Development Corporation), electrical and electronics (E&E) products accounted for around 40%1 of total exports in recent years, reinforcing the country’s role in regional manufacturing networks.

Geography, once seen as less relevant in a highly globalised world, is becoming an investment factor again.

Which sectors will benefit?

Periods of geopolitical stress do not affect all sectors equally. Historically, investors have often rotated towards areas seen as more resilient or better positioned for the changing environment.

For example:

• Energy may benefit when higher oil and gas prices support earnings.
• Defence and security can attract attention when governments increase spending.
• Gold and precious metals are often viewed as stores of value during uncertain times.
• Infrastructure and logistics may benefit as supply chains are rebuilt, diversified, or localised.

However, there’s a caveat. Sectors that are highly rate-sensitive or heavily dependent on complex global supply chains may experience greater volatility. This is all the more reason investors shouldn’t chase headlines. They should understand how capital repositions when risks change.

What would an experienced investor do?

Seasoned investors approach geopolitical volatility differently. Rather than asking whether they should exit markets entirely, they focus on whether anything fundamental has changed. They consider whether quality assets are being sold indiscriminately, whether portfolios have become too concentrated, and whether sufficient diversification and liquidity are in place.

That perspective can be valuable. Some of the strongest long-term opportunities have emerged when fear temporarily pushed down fundamentally sound assets alongside weaker ones.

For instance, the Russia-Ukraine conflict caused big tech shares to drop significantly, despite strong recurring enterprise revenues, high cash generation, and a dominant market position. Investors who distinguished between temporary sentiment-driven weakness and lasting fundamental damage were better positioned when these companies recovered in subsequent periods. In short: let the fundamentals speak through the noise and panic.

A Malaysian perspective

Let’s take this approach and zoom in on the Malaysian market. For Malaysian investors, the current environment presents both opportunities and risks.

Malaysia potentially stands to benefit from several structural shifts now taking place across the global economy. Supply chain diversification has encouraged multinational companies to broaden their manufacturing footprint beyond a single market, and Southeast Asia has become an increasingly important beneficiary of that trend. Malaysia’s established industrial ecosystem, skilled workforce, and strength in sectors such as electrical and electronics continue to support its relevance within regional supply chains.

Domestic opportunities may emerge in sectors linked to infrastructure, industrial parks, logistics, data centres, utilities, and selected manufacturing plays that could benefit from ongoing investment inflows. Financial institutions may also benefit over time from healthier economic activity and investment financing, while consumer-facing sectors could gain if domestic demand remains resilient.

At the same time, Malaysia remains closely tied to external demand. As a trade-oriented economy, it is still sensitive to slower global growth, weaker export markets, commodity price volatility, and shifts in investor sentiment. Developments in the United States, China, Europe, and the broader region can all influence domestic markets through trade flows, currency movements, and capital allocation trends.

On the other hand, export-oriented sectors may experience periods of volatility when global demand weakens, or geopolitical tensions disrupt trade patterns. Companies with heavy dependence on external markets or imported inputs may face margin pressure when currencies move sharply or supply chains become less efficient.

This creates a more nuanced investment backdrop, where balance is extremely important.

Rather than relying too heavily on a single sector, theme, or geography, Malaysian investors may wish to consider whether their portfolios are sufficiently diversified across domestic and international opportunities, growth, and defensive exposures, as well as income-generating assets. Exposure to structural themes such as ASEAN growth, digitalisation, healthcare, or infrastructure may complement more traditional holdings.

It may also be worth asking practical questions:

• Am I overly concentrated in one market or sector?
• Do I have enough defensive or income-oriented assets if volatility arises?
• Am I participating in long-term growth themes beyond today’s headlines?
• Is my portfolio positioned to benefit if Malaysia attracts more investment flows?

Resilience isn’t a matter of trying to pre-empt every geopolitical event. That’s impossible. It comes from owning a portfolio that can adapt as conditions change (and they will). A fund that could be a helpful addition to your portfolio is one that aims to provide consistent income, like the Principal Nasdaq Equity Premium Income Fund. Another example is the RHB Global Focused Growth Equity Fund, which gives you access to a diversified portfolio of companies across the globe, including emerging markets.

The bottom line

Investing has always been about understanding change. What’s different today is where that change is coming from. Markets are no longer shaped solely by economics. Politics, policy, and strategic competition are playing a growing role in how capital moves and how risk is priced.

This environment calls for perspective, discipline, and mindful diversification. In a divided world, investment success calls for choosing the right assets and understanding the forces that shape them.

¹ Department of Statistics Malaysia; External Trade Statistics Malaysia (2023–2024).

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