What to do when geopolitics becomes a portfolio risk

While nothing new, geopolitical risk is becoming harder for investors to ignore.

- Christian Mueller-Glissmann

Geopolitics is back—again—and Australian investors can no longer treat it as distant background noise.

From Washington's increasingly assertive foreign policy to renewed instability in the Middle East, the global backdrop is becoming more volatile just as portfolios remain heavily exposed to US and offshore assets. After briefly fading geopolitical risk following last year's tariff shock, markets are once again confronting the reality that negative shocks may be more frequent, less predictable, and harder to diversify away from.

That message was reinforced by the most recent US State of the Union address, which made clear that the US continues to reshape its global geopolitical and economic relationships. For global investors—including Australian super funds with large offshore exposures—this underlines a simple reality: policy uncertainty is no longer episodic, but structural, and portfolios need to be built accordingly.

For Australia, this matters more than it once did. Institutional portfolios are deeply global, with significant allocations to US equities, global credit and offshore private markets. At the same time, the domestic economy remains tightly linked to global trade cycles, commodity demand and Asian growth—particularly China. In a world of rising fragmentation and policy uncertainty, those linkages amplify both opportunity and risk. Deglobalisation is no longer an abstract concept; it feeds directly into growth, inflation and currency dynamics that shape portfolio outcomes.