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Geopolitical uncertainty is pushing global investors toward the gold, defence and energy transition sectors, as markets position for a prolonged period of energy risk and inflation pressure, according to global investment manager Schroders.The firm said investors are moving away from trying to predict geopolitical outcomes and instead focus on identifying which countries and sectors are most exposed to shocks such as energy disruption, inflation and currency volatility.“Generally, investors have very limited edge in predicting geopolitical outcomes,” said Schroders head of emerging market equities Tom Wilson. “Our value-add lies not in predicting the next headline, but in assessing the relative exposure of countries and companies to the conflict and where we can allocate risk.”Wilson said the prevailing environment is “a prolonged geopolitical shock”, with investors prioritising resilience and relative exposure over scenario-based positioning, adding that the shift is showing up in portfolio allocation.Gold continues to attract demand as investors seek protection against currency weakness, fiscal uncertainty and broader market volatility, with central bank buying away from traditional reserve assets adding further support.Defence companies are also seeing increased interest as governments respond to a more divided global security environment, with expectations of sustained or higher military spending across key regions.Schroders said this is part of a broader move towards security-linked assets, with investors increasingly buying defence and security-related assets as global political tension and divisions become a lasting feature.Electricity and cleaner energyAlongside these positions, investors are also increasing exposure to sectors linked to the global shift towards electricity and cleaner energy, “as part of a broader search for assets less exposed to fuel import shocks and energy price volatility”. These include companies involved in renewable power generation such as wind and solar projects, electricity grid infrastructure, battery storage systems and electric transport, including electric vehicles and charging networks.Schroders said the dollar is also responding to the same shift in investor positioning taking place amid geopolitical uncertainty.The firm said the Iran conflict could strengthen the dollar in the near term through its effect on energy markets and relative economic exposure. Higher oil prices tend to weigh more heavily on energy-importing economies, increasing demand for the dollar in global transactions and hedging flows.Wilson said the US is less exposed to this type of shock given its energy self-sufficiency, which may reinforce the dollar’s relative strength compared with other currencies during periods of heightened geopolitical tension.However, over a longer horizon, Schroders still sees scope for dollar weakness on concern over US fiscal and external imbalances, which could eventually ease financial conditions for emerging markets.
