When geopolitical tension rises, it’s completely normal to feel unsettled. Headlines can be confronting, information changes quickly, and markets can swing day to day. In moments like this, many investors find themselves thinking, “This time is different.”
Sometimes the details are new, but the way markets behave during uncertainty is often very familiar. The most reliable investment outcomes usually don’t come from predicting what happens next. They come from staying disciplined, keeping perspective, and sticking to a plan designed to cope with uncertainty in the first place.
For New Zealand investors, there’s an extra layer. We’re a small, open economy, so global events can show up locally through the NZ dollar, fuel prices, interest rates, and sentiment, even if the actual conflict is far offshore.
Why markets can improve before the news does
One of the most counter‑intuitive things about markets is that they often start recovering while the headlines still feel grim.
That’s because markets move on expectations, not certainty. As soon as probabilities shift, even slightly, prices can reprice quickly. It’s also why some of the strongest market days often occur close to the weakest ones.
This matters because “stepping aside until things feel better” can be expensive. By the time the world looks calmer, markets may already have rebounded. Missing those rebound days can have an outsized impact over time.
Geopolitical shocks: what tends to be short‑lived vs what can linger
A helpful way to think about geopolitical events is to separate them into two broad categories.
A) Shock events (often sharp, often temporary)
These are sudden escalations that create volatility and short‑term drawdowns, but don’t necessarily change the economic backdrop in a lasting way. Markets can wobble, but once investors feel the risk is contained, prices often stabilise.
B) Macro events (when geopolitics spills into the real economy)
These episodes can last longer, typically when the disruption triggers a persistent economic shock, most commonly through:
– energy prices (oil, shipping routes, supply constraints), and/or
– inflation pressure, which then influences interest rates.
We tend to feel energy shocks quickly at the pump and in transport costs, and that can flow into the inflation conversation locally. If inflation looks stickier, markets start thinking about what that means for interest rates and the broader economy. Those expectations can move bond yields and equity valuations.
Why “doing something” can be riskier than “doing nothing”
Volatility creates urgency. When markets fall quickly, the instinct is to do something, move to cash, switch funds, or chase what has recently done well.
The problem is that reactive decisions often happen at the worst moment, when emotions are high and prices already reflect fear. That’s how investors can accidentally:
- lock in losses,
- miss the recovery, and
- end up buying back in at higher prices.
This doesn’t mean portfolios never change. It simply means that good changes are planned, not rushed. Adjustments should be guided by your long‑term goals, time horizon, income needs, and risk tolerance, not the emotional peak of a news cycle.
It’s especially tempting here to “get defensive” by shifting heavily into cash or term deposits when uncertainty rises. Those tools can absolutely have a role, but if the move is purely reactive, it can undermine the long‑term growth you need to stay ahead of inflation.
A better approach: resilience beats prediction
Because no one can consistently predict shocks, geopolitical or otherwise, the practical goal is to build a portfolio that can withstand them.
In plain terms, a resilient portfolio usually includes:
- diversification across regions and sectors (because shocks rarely affect all areas equally)
- a mix of growth and defensive assets (so your outcome isn’t dependent on one perfect scenario)
- a clear plan for new cash or rebalancing (so decisions are made thoughtfully, not impulsively)
The New Zealand sharemarket is small and concentrated, so true diversification usually means meaningful exposure offshore. That can feel uncomfortable in volatile periods, but it’s often exactly what helps reduce reliance on any single market or sector.
Key takeaway: resilience isn’t about being bullish or bearish. It’s about building portfolios designed to compound through uncertainty.
What matters most right now (without trying to forecast outcomes)
In periods like this, markets typically focus on a small set of practical questions:
- Does the situation create sustained pressure on energy prices?
- Does that flow through to inflation and interest rates?
- Does it change the outlook for central banks and bond yields?
Bottom line
Geopolitical crises are unsettling, and it’s normal to feel that. But for diversified, long‑term investors, success typically comes from:
- staying invested,
- avoiding emotional decisions,
- keeping portfolios well‑balanced (including sensible offshore exposure), and
- revisiting the plan when life circumstances change, not when headlines do.
If you’re feeling uneasy, that’s a good prompt for a conversation, not a rushed decision. Often, the most valuable action is simply checking that your portfolio still matches your goals and risk comfort, and then letting the plan do its work.
