How financial markets reacted to geopolitical noise

In our latest monthly update video, our Chief Investment Officer Richard Flax reflects on what proved to be an eventful start of the year and explores the implications of geopolitical news for financial markets. You can also find a written version of his commentary below.

The year 2025 proved to be pretty robust in markets and portfolios, with solid gains across most portfolios. As we come into 2026, the news headlines have been coming thick and fast – from Venezuela to Greenland to Minneapolis. But if you only looked at financial markets, you might have thought there was little to report. Global equities, in sterling, are slightly positive as we approach month-end, while returns for global bonds are broadly flat. Equity volatility has been fairly subdued. Only the strong rally in gold – up around 15% so far this year – and a weakening of the US dollar might have given a hint about the geopolitical noise.

Within equities, we’ve seen some themes spilling over from 2025. In January, Emerging Market equities have continued to outperform, up around 5% in sterling. US equities have been relative laggards, roughly flat for the month in pounds. It’s worth noting that the dollar has generally weakened a bit, and that’s helped dampen returns for sterling investors.

Emerging Markets have benefited from a couple of tailwinds. First, the commodities space has benefited from rising prices for things like gold and copper – helping miners in South Africa, Mexico and Brazil. Second, the technology sector in Emerging Markets is quite large – dominated by large tech companies in Taiwan and Korea. We’ve seen increased spending on AI benefit companies like TSMC in Taiwan and Samsung Electronics in Korea. We continue to hold Emerging Market equities in many of our portfolios. 

Turning to corporate earnings, expectations for 2026 are quite optimistic – with analysts on average expecting double digit growth earnings growth across the US, Europe and Emerging Markets. Investors will be paying close attention to corporate earnings reports over the coming weeks to assess whether or not those forecasts are realistic. For now, we continue to think that a decent macroeconomic environment, with lower interest rates and some increased fiscal spending, should support the earnings outlook. 

Data point of the month

The number that caught our attention in January was $5,000 – the price per oz of gold. At the start of 2024, the price of gold was around $2,000 per oz. Gold is generally seen as a safe haven asset – something to hold during periods of uncertainty. And that seems appropriate – given the news headlines we see. But, it’s not completely clear-cut. Inflation remains fairly close to Central Bank targets. The money supply in the US or Europe isn’t growing particularly quickly and risky assets, like equities, continue to perform fairly well. That said, gold – either directly or via a broad commodity ETF – continues to help diversification across a number of our portfolios.

Question for the month

We’ve had a lot of questions about why financial markets haven’t reacted more strongly to all of the geopolitical noise we’ve heard in January. 

We think the key point is to focus on how geopolitical events can impact macro data and corporate earnings. We think we do see markets suffer when investors see potentially higher tariffs, for instance. Happily we saw the tension over Greenland and the potential tariff threat de-escalate, at least for now, while specific events in Venezuela haven’t really impacted the global economy. The geopolitical environment remains fragile, but for now we think there hasn’t been much transmission into the global economy. It’s something we’ll continue to monitor.