How To Think About Geopolitics When Investing

Political

Summary:

Geopolitics is once again making its presence felt in financial markets. This morning (in the UK at least) we woke up to the news that Israel has launched airstrikes designed to damage Iran’s nuclear capacity, and Iran has retaliated with drone strikes. You can read our rolling blog here.

My beat is investment, and that’s the aspect of this event that we’ll be talking about here. It should go without saying that this does not mean I’m underplaying any other aspect of this conflict.

Big geopolitical events — even ones that don’t directly affect you — can lead you to feel that you must act in some way. The headlines are noisy, the markets are turbulent, and it’s easy to be persuaded by the hubbub that you should in some way be joining in.

It’s my job today to remind you that you have no obligation to do anything whatsoever, and for most of you, it’s probably best that you don’t.

You cannot predict the future. This situation either escalates from here, or it doesn’t. You are probably not in a position to know either way. And even if you did know, positioning your portfolio “correctly” would still be something of a guessing game.

In terms of probabilities, the most obvious one is that you can probably assume that the oil price will likely remain higher than it otherwise would have been. Tom Holland over at Gavekal reckons we can probably kiss goodbye to the idea of oil going back to the sub-$60 a barrel lows we saw earlier this year.

That’s likely to be good news for oil producers. As for the wider economy, if the oil price stays high, then that will have a knock-on effect on inflation — pushing it higher. You’d probably also get a knock-on effect on economic growth, in that it will hurt it.

Also, you can point to other industrial sectors that might be helped or harmed by this news — although the arguments are likely much more nuanced than you’d initially assume.

My point is you could sit and rack your brains and throw these scenarios around in your head all day. Some people do that for a living, and some people do it for fun. But if neither of those scenarios describes you, then the truth is, it’s a waste of your time.

Instead, as I always say, don’t panic, and stick to your plan.

But what do I mean by that?

The main goal of most people’s financial plan is to ensure that they have enough money to retire at the age they hope to, and with the standard of living they desire.

There will be other goals in there, depending on your life stage: home ownership, potentially educating your kids, and for the very well off, contemplating your financial legacy. But the big one is: When can I stop working, and how much do I need to do so?

So you work and you steadily put money away with the aim of reaching that goal. And once you retire, you nurture that money with the aim of making sure it lasts.

That’s quite a task when you think about it. Sure, life might get a bit cheaper once you’ve retired, assuming you don’t have a mortgage anymore, for example. And there’s the state pension.

But if you want to be able to pack in your job and replace enough of that income to maintain your standard of living, then you’re going to need the money you save towards that goal during your working life to not just maintain its value (ie beat inflation) but also to grow.

This is why we don’t just stick our long-term savings in a piggy bank. With the caveat that past performance is no guarantee of future performance, history shows that of all financial assets, over the long run, equities deliver the best returns.

Why do equities deliver the best returns? Basically, because they involve taking more risk than holding cash, or lending money to reliable borrowers (investing in highly-rated bonds). If they didn’t offer better returns, it wouldn’t be worth taking the risk.

By “risk” though, the financial world basically means price volatility. In other words, if you own a portfolio full of equities, and you watch the price every day, you’ll have a much more stressful time of it than if all the money was in bonds, or in cash.

However, assuming that you diversify across lots of equities and are thus protected against more existential forms of risk — like the risk of an individual stock going bankrupt and taking all your money with it — then the long-term returns should beat those of other financial assets.

What other assets might you own as well? Bonds (for diversification and an element of stability), gold (as portfolio insurance), and cash (always useful for keeping your options open). Property is really just another form of equity, but you might want to think about it separately.

Within all that, the question of how you divvy up your portfolio between assets boils down to how active an investor you want to be (or feel you can be) and how lengthy your time horizon is. Broadly speaking, the further you are from retirement, the more risk you can afford to take.

I talk more about the point of asset allocation here and about the “primary colours” of investment here. My own broad philosophy is “try to own more of what’s cheap, and less of what’s expensive.” However, there are differing opinions on all this stuff — that’s what makes a market.

Fundamentally though, it’s the “having a plan” that’s important. It means that when unexpected and noisy events like this occur, you are in a better position to a) not panic and b) consider using any unusual price moves to buy attractive assets at lower prices.

In the absence of crystal balls, it’s your best strategy for coping with an uncertain world.

Source: Bloomberg Europe

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Gerik

Economic

Foreign Capital Flows Reverse After Ten-Month Drought

According to the Financial Supervisory Service (FSC) of South Korea, foreign investors purchased a net 2.01 trillion won (approximately USD 1.4 billion) worth of listed stocks in May 2025. This marked the first month since July 2024 that foreign capital shifted from net selling to net buying in the Korean equity market. The influx was concentrated on the benchmark KOSPI index with 1.867 trillion won in net purchases, while the KOSDAQ index also saw a modest inflow of 143 billion won.

This reversal in sentiment is largely attributed to two critical factors: the stabilization and slight appreciation of the South Korean won against the U.S. dollar, and a decline in tariff-related uncertainty from the United States, which had previously weighed heavily on investor sentiment.

Supportive Macroeconomic Conditions Fuel Confidence

Market analysts note that the improved forex conditions have made Korean assets more attractive to foreign buyers. The easing of tariff rhetoric from President Trump’s administration has further reduced the risk premium attached to South Korean exports and financial markets.

Investor optimism is also being bolstered by expectations of new economic policies from South Korea’s government under Prime Minister Kim Dong-yeon, who has emphasized market liberalization and innovation-driven growth.

The strongest inflows came from U.S. and Irish investors, with net purchases of 1.8 trillion and 600 billion won respectively, reflecting broad global investor confidence in South Korea’s financial markets.

Sustained Momentum in Bond Markets

In parallel with equities, the South Korean bond market has continued to attract foreign capital for a fourth consecutive month. In May 2025, net purchases reached 11.34 trillion won. Foreign investors bought 16.66 trillion won in bonds and redeemed 5.32 trillion won as existing positions matured.

European investors led the bond inflow by region, contributing 6.4 trillion won, followed by investors from Asia with 3.1 trillion won and the Middle East with 900 billion won. Notably, holdings in South Korean government bonds increased by 11.7 trillion won.

Foreign Ownership Share Grows

By the end of May 2025, foreign investors held 748.8 trillion won in Korean equities, representing 26.7% of total market capitalization. In the bond market, they held 300.5 trillion won, accounting for 11.2% of the listed bond market's size.

This data underscores a renewed confidence in Korea’s macroeconomic stability and policy outlook. As long as currency stability persists and global geopolitical risks remain manageable, foreign capital is expected to continue its gradual return to the Korean financial markets.

Source: YNA

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Gerik

Economic

Revival Amid Pressure: EV Sales Surge Across Europe

After a sluggish 2024 marked by the end of key subsidies in Germany and economic instability in France, the European EV market has bounced back in 2025. Registrations of electric, hybrid, and plug-in hybrid vehicles rose 20% year-over-year, with battery electric vehicles (BEVs) alone increasing by 26%, according to the European Automobile Manufacturers Association (ACEA).

This resurgence is vital for Europe’s auto sector, which has been squeezed by high production costs, rising competition from Chinese EV makers, and increasingly strict EU emission regulations. Adding to the pressure are US tariffs imposed by President Trump, straining European exporters.

Regulatory Push and Strategic Discounts Fuel Sales

The key driver of this EV revival is not just growing consumer enthusiasm or better charging infrastructure, but a new EU regulation enacted in January 2025. It mandates automakers to cut average CO₂ emissions per fleet by 15% compared to 2021 levels or face steep penalties.

To meet these targets, manufacturers like Volkswagen and Renault are aggressively pushing EV sales—slashing prices, offering attractive financing, and flooding the market with cost-efficient models. Analysts from Ernst & Young note that the cost gap between combustion-engine and electric vehicles is narrowing fast, helping accelerate corporate fleet adoption.

Uneven Growth and Lingering Doubts

Despite the positive momentum, EV adoption remains patchy. Scandinavian nations like Norway and Denmark lead the transition, while countries in Eastern Europe—such as Poland, Slovakia, and Bulgaria—see less than 5% of new vehicle registrations coming from EVs.

More critically, consumer sentiment hasn’t shifted in parallel with sales. Surveys by AlixPartners and Bloomberg Intelligence show limited enthusiasm: only 16% of European car buyers prefer full electric vehicles, while nearly half still lean toward hybrids due to perceived reliability and easier refueling options.

Charging Infrastructure: The Bottleneck to Mass Adoption

The greatest hurdle remains infrastructure. Although the EU now hosts over 880,000 public charging stations (surpassing 1 million with non-EU countries included), it still falls far short of the European Commission’s target of 3.5 million chargers by 2030.

GridX, a leading energy tech firm, estimates that to reach this goal, Europe must triple its annual installation rate to 410,000 new charging points per year. The patchy availability means that long-distance EV trips—such as a 3,500 km drive from Lisbon to Bialystok—still pose major logistical challenges.

The European EV market’s rebound underscores the effectiveness of regulatory pressure and corporate incentives. However, without significant investment in charging infrastructure and stronger public engagement, the road to a fully electrified fleet will remain uneven. Bridging the gap between policy goals and consumer confidence is now the key to sustaining the momentum.

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Gerik

Economic

Middle East Situation

Coordinated Response to Rising Geopolitical Risk

On June 13, the South Korean government announced the launch of an inter-agency emergency task force to closely monitor the potential impact of the escalating Israel-Iran conflict on domestic and global financial markets. The decision followed a high-level emergency meeting chaired by Acting Finance Minister Lee Hyoung Il.

The primary objective of the team is to evaluate market volatility, pre-empt economic shocks, and implement rapid response measures to stabilize the country's financial system. Minister Lee emphasized that policy responses would be rolled out swiftly to reassure markets and ensure consumer price stability.

Energy Dependency Heightens Vulnerability

As a nation heavily reliant on energy imports, particularly oil and LNG from the Middle East, South Korea is acutely exposed to supply shocks triggered by geopolitical unrest. Minister Lee acknowledged the critical need to assess how further escalation in the region could affect global energy supply and demand dynamics.

He warned that the increasing volatility in global energy prices must be carefully monitored, and the government would work proactively to prevent any disruption to energy supplies.

Market and Consumer Impact in Focus

The emergency team will focus on real-time monitoring of oil price movements, exchange rates, and investor sentiment, alongside coordinating with central financial authorities like the Bank of Korea and the Financial Services Commission. Contingency plans are expected to include both fiscal and monetary instruments to support economic resilience.

Consumer prices, already pressured by external shocks and inflationary momentum, remain a core concern. The government pledged to intervene if necessary to prevent a further surge in energy and commodity prices from undermining household purchasing power and business confidence.

As tensions in the Middle East threaten to spiral into broader conflict, South Korea's proactive stance reflects its sensitivity to global market shifts and energy risks. The rapid formation of a coordinated emergency response unit demonstrates Seoul's commitment to shielding its economy from the fallout of external shocks — with eyes firmly set on maintaining domestic stability in uncertain times.

Source: The Koren Times

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Gerik

Commodity

Political

A Swift Turn from Russian Gas

Germany's energy vulnerability was laid bare when Russia invaded Ukraine in 2022. Dependent on Russian pipelines, Germany had no LNG terminals at the time. Within just three years, the nation has built four. The newest, in Wilhelmshaven, received its first LNG shipment from the U.S. Gulf Coast in late May 2025.

Marco Alverà, CEO of the Dutch green energy firm TES and a key partner in building the terminal, described the arrival of the Energy Endurance vessel as “the first icebreaker,” signaling a new chapter in Germany’s energy independence.

Wilhelmshaven: From Backwater to Energy Hub

Initially envisioned as a green hydrogen import site, Wilhelmshaven’s port was rapidly adapted into an LNG terminal when Russian gas flows dried up. LNG now makes up around 40% of Europe’s gas supply — nearly half of it from the U.S. — and Germany is leading the continent in new import capacity.

According to energy analyst Laura Page of Kpler, Europe’s LNG import capacity has grown by 30% annually since 2022, with Germany accounting for much of that expansion. This development not only diversifies supply but also undercuts Russian energy influence.

How It Works: Floating Terminals and Strategic Investment

The Wilhelmshaven terminal uses a floating storage and regasification unit (FSRU) named Excelsior to convert LNG back into gas before feeding it into Germany’s national grid. TES plans to replace this setup with a €1 billion complex and a €600 million pier capable of docking six vessels simultaneously. This long-term infrastructure could dramatically boost capacity and efficiency, while attracting investor interest.

Large-scale imports from the U.S. are also reshaping trade relations. Alverà emphasized that if Europe seeks a lasting LNG deal with President Trump, Wilhelmshaven is the only site on the continent capable of immediate, scalable expansion.

Policy Shifts and Practical Energy Security

Germany’s new government, led by Chancellor Friedrich Merz, has adopted a pragmatic stance. Energy Minister Katharina Reiche, a former executive in the regional utility sector, now advocates for building at least 20 GW of new gas-fired power plants. These would stabilize the grid during periods when solar and wind energy are insufficient — a move that reflects a more grounded energy strategy amid rising industrial demand.

The strategic repositioning of Wilhelmshaven has reinvigorated the area, long overshadowed by Hamburg. LNG terminals have already created 1,600 new jobs, making it one of the fastest-growing regions in Lower Saxony.

Companies like Uniper, nationalized during the 2022 crisis, have played a central role. Uniper’s executive Carsten Poppinga called the new LNG ports “resilience boosters” that enhance geopolitical autonomy.

Germany’s rapid LNG expansion — especially in Wilhelmshaven — is more than a national pivot; it’s a blueprint for Europe’s future energy policy. With American gas flowing into European shores and long-term infrastructure plans underway, Wilhelmshaven stands as a symbol of a continent striving to secure its energy future, no longer hostage to Russian pipelines.

Source: The New York Times

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Devin

Political

Airlines steered clear of much of the Middle East on Friday after Israeli attacks on Iranian sites forced carriers to cancel or divert thousands of flights in the latest upheaval to travel in the region.

Proliferating conflict zones around the world are becoming an increasing burden on airline operations and profitability, and more of a safety concern. Detours add to airlines' fuel costs and lengthen journey times.

Israel on Friday said it targeted Iran's nuclear facilities, ballistic missile factories and military commanders at the start of what it warned would be a prolonged operation to prevent Tehran from building an atomic weapon.

Tel Aviv's Ben Gurion Airport was closed and Israel's air defence units stood on high alert for possible retaliatory strikes from Iran.

Israel's El Al Airlines (ELAL.TA), opens new tab said it had suspended flights to and from Israel as did Air France KLM (AIRF.PA), opens new tab and budget carriers Ryanair (RYA.I), opens new tab and Wizz (WIZZ.L), opens new tab.

Wizz said it had re-routed flights affected by closed airspace in the region for the next 72 hours. Israeli airlines El Al, Israir (ISRG.TA), opens new tab and Arkia were moving planes out of the country.

FlightRadar data showed airspace over Iran, Iraq and Jordan was empty, with flights directed towards Saudi Arabia and Egypt instead.

About 1,800 flights to and from Europe had been affected so far on Friday, including approximately 650 cancelled flights, according to Eurocontrol.

With Russian and Ukrainian airspace closed due to war, the Middle East region has become an even more important route for international flights between Europe and Asia.

The escalation of the Middle East conflict knocked shares in airlines around the world with British Airways owner IAG (ICAG.L), opens new tab down 4% and Ryanair off 3.5%. A surge in oil prices after the attack also stirred concerns about jet fuel prices.

Many global airlines had already halted flights to and from Tel Aviv after a missile fired by Yemen's Houthi rebels towards Israel on May 4 landed near the airport.

Iranian airspace has been closed until further notice, according to state media and notices to pilots.

Air India, which flies over Iran on its Europe and North American flights, said several flights were being diverted or returned to their origin, including ones from New York, Vancouver, Chicago and London.

Germany's Lufthansa (LHAG.DE), opens new tab said its flights to Tehran have been suspended and that it would avoid Iranian, Iraqi and Israeli airspace for the time being.

Emirates (EMIRA.UL) also cancelled flights to and from Iraq, Jordan, Lebanon, and Iran while Qatar Airways axed flights to Iran, Iraq and Syria.

Iraq early on Friday closed its airspace and suspended all traffic at its airports, Iraqi state media reported.

Eastern Iraq near its border with Iran contains one of the world's busiest air corridors, with dozens of flights crossing between Europe and the Gulf, many on routes from Asia to Europe, at any one moment.

Jordan, which sits between Israel and Iraq, also closed its airspace several hours after the Israeli campaign began.

Russia's civil aviation authority Rosaviatsia said it had instructed Russian airlines to stop using the airspace of Iran, Iraq, Israel and Jordan until June 26. It said flights to airports in Iran and Israel were also off limits for civil carriers.

FLIGHT DIVERSIONS

"Traffic is now diverting either south via Egypt and Saudi Arabia, or north via Turkey, Azerbaijan and Turkmenistan," according to Safe Airspace, a website run by OPSGROUP, a membership-based organisation that shares flight risk information.

The Israeli-Palestinian conflict in the Middle East since October 2023 led to commercial aviation sharing the skies with short-notice barrages of drones and missiles across major flight paths – some of which were reportedly close enough to be seen by pilots and passengers.

Six commercial aircraft have been shot down unintentionally and there have been three near misses since 2001, according to aviation risk consultancy Osprey Flight Solutions.

Last year, planes were shot down in Kazakhstan and in Sudan. These incidents followed the downing of Malaysia Airlines flight MH17 over eastern Ukraine in 2014 and of Ukraine International Airlines flight PS752 en route from Tehran in 2020.

Source: Reuters

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Thomas

Economic

Israeli airstrikes on Iran earlier on Friday should have limited impact on global inflation and growth, according to analysts at Capital Economics.

In a note to clients, the analysts led James Swanston said that the violence could affect the world economy through higher oil prices. Should Israel choose to attack Iran’s oil production and export facilities, they estimated that Brent crude could jump to around $80 to $100 per barrel, which would add roughly 0.5 to 1 percentage points to developed market inflation by the end of the year.

Any rise in energy inflation would be another reason for central banks to proceed cautiously with cutting interest rates, and for the Federal Reserve to maintain its current wait-and-see attitude to future rate reductions, the analysts said.

However, they flagged that, even after a spike in crude following the strikes, oil prices are "considerably lower than they were a year ago."

Israel launched what it called a "preemptive" large‑scale airstrike on Iran early Friday, hitting “dozens” of military and nuclear targets, while a state of emergency was declared across Israel amid warnings of an imminent missile and drone counter‑strike from Tehran.

Iran’s state media also confirmed reports saying that Israel has killed Iran’s Revolutionary Guards Commander Hossein Salami.

Iran pledged a “harsh” retaliation against both Israel and the United States, while analysts have flagged worries that Tehran’s response could heighten security risks in the Strait of Hormuz, a critical artery for global shipping.

Elsewhere, U.S. Secretary of State Marco Rubio said that Israel carried out its military action against Iran independently, citing self-defense as the driving motive behind the strikes.

The White House had warned it would consider military measures should nuclear negotiations fail, with a key response deadline ending Thursday.