Summary in Plain Language
This financial research from Peking University HSBC is essentially a reminder to all investors: the old investment principle that has been widely accepted over the past 30 years—i.e., “no matter what conflicts or minor battles occur, the market will always recover to its previous level after a few days of decline”—has completely lost its validity. Today, global geopolitical tensions are no longer occasional short-term disruptions; they have become a permanent and core factor affecting the prices of stocks, funds, and gold. The entire global asset pricing system is undergoing a once-in-a-century transformation. Continuing to invest using the old mindset could easily lead to significant mistakes.
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Detailed Explanation by Dimension
1. Why Didn’t Investors Care About Geopolitical Conflicts in the Past?
From the 1980s to around 2010, the world was in a period of relative peace and economic growth, known as the “Great Moderation.” After the end of the Cold War, there was a consensus that business should take precedence. China’s entry into the WTO provided a large supply of cheap labor for the global supply chain, while Europe and the United States experienced the Internet and technology revolution. The division of labor was clear: Europe and the US focused on design and high profits, China on manufacturing and processing fees, and the Middle East on selling oil for resources. No one wanted to undermine this profitable environment.
Even events like the Gulf War or the Balkan conflicts were seen as temporary disruptions that would be resolved in a few months, with markets rebounding within a few days to their previous levels. Investors didn’t need to worry about international politics; they just needed to focus on economic growth and whether companies were profitable. Geopolitical factors were considered negligible.
2. Geopolitical Risks Have Become the “New Normal”
The global order has now entered a state of chaos and high entropy, without clear rules. The Russia-Ukraine conflict has lasted for nearly four years with no end in sight, and the situation in the Middle East escalates frequently. The average level of geopolitical risk over the past decade is much higher than in the previous decade. In the past, you might trip over a banana peel and pick up again; now, the entire path is covered with broken glass, and you have to be careful with every step you take.
In essence, the competition between major powers has shifted from who can make the most money to who can avoid being choked off by others. There is no longer an assumption that the global supply chain will always function smoothly. Geopolitical risks are no longer external or accidental; they have become a constant factor, just like inflation and interest rates, affecting the market every day.
3. The Four Stages of How Geopolitical Conflicts Affect Your Money
The impact of geopolitical events on asset prices follows a clear pattern with four stages. The old strategy of “selling stocks and buying gold during a war” only applies to one of these stages:
- Stage 1: Expectation Phase: Before the war actually starts, rumors abound, and asset prices begin to fall. By the time the news is confirmed, the negative impact is already maximized. Studies have shown that the fear of a war can have a greater effect on the market than the war itself.
- Stage 2: Panic Phase: When the event occurs, everyone panics and sells stocks to buy gold, dollars, or oil. For example, in 2022, when the Russia-Ukraine conflict began, European and American stock markets dropped by 5%-15%, and oil prices rose by 30% within two weeks.
- Stage 3: Realization Phase: After months of conflict, people calm down and assess the actual impact. For instance, OPEC+ still had excess oil production, so oil prices didn’t rise further and even fell. In 2026, when a Middle East conflict occurred, the previously high expectations for gold prices led to a 20% drop in just 20 days, demonstrating that the traditional “safe-haven” logic no longer works.
- Stage 4: New Rules: After years of conflict, a new global order emerges, and old investment principles become obsolete. The entire market pricing logic is completely changed.
4. The Pricing Logic of Three Key Asset Classes Has Changed
With geopolitical risks becoming a core factor, the valuation of three common asset classes has changed significantly:
- Traditional Safe-Haven Assets: U.S. government bonds were once considered the most stable asset, but now the U.S. debt exceeds 120% of its GDP, and the U.S. often uses debt freezes as a tool of sanctions. U.S. bonds have shifted from a safe haven to a source of risk, while gold is becoming the new universal hard currency.
- Strategic Resources: The prices of oil, lithium, and rare earths used to be determined by supply and demand, but now they also depend on whether you can purchase them safely. If transportation channels are blocked, you can’t get the resources, so these resources will carry a “safety premium” and will never return to their previous low prices.
- Technology Assets: Companies that can develop their own chips and components independently are now valued more highly because they are less vulnerable to supply disruptions. Their reliability is considered more important than anything else.
5. Practical Advice for Investors
Global capital is seeking new safe-haven assets that are not easily affected by geopolitical risks. Chinese assets have become a new safe haven for foreign investors. Previously, Chinese assets were seen as an optional addition to a global portfolio; now, they are becoming a necessary component. For ordinary investors, the key message is to stop relying on the old notion that markets will always recover after a decline. In the future, some industries and assets that are heavily impacted by geopolitical risks may never return to their previous levels. Instead, assets like gold, high-dividend energy/resources companies, and companies with independent technology will have increasing long-term value.