'Shockproof' portfolios integrate geopolitical risks: CIO

Investors must integrate geopolitical risks into their decision making and anticipate assets are being repriced at a blistering rate, as a means to help "shockproof" portfolios, according to an investments chief.

As uncertainty around geopolitical risks and geoeconomic shocks heighten, asset owners and wealth managers must anticipate the potentially negative impact on assets, investments and economies, the annual Responsible Investment Association Australasia (RIAA) Conference held in Melbourne heard.

Speaking on a panel, Colonial First State (CFS) chief investment officer Jonathan Armitage warned geopolitical disruption is no longer episodic but a defining feature of today's investment landscape, with far-reaching implications for asset pricing and portfolio construction.

"There's this view that geopolitical events occur once in a while and are one-off scenarios. The events of the last five or six years have demonstrated that that is no longer true," he said.

What is happening now, Armitage explained, is a "magnification" of several forces - a confluence of events in the Middle East and other parts of the world, along with macroeconomic factors, such as the reversal of globalisation, volatile inflation and resource scarcity.

While this is not necessarily new, Armitage said it is a good reminder for investors that these are becoming part of the new investing landscape.

"It's less about thinking this is a one-off scenario with a relatively small probability of occurring. This is now almost the operating environment we have to invest in," he said.

What is inevitable is the rise in the cost of capital.

"That will feed through into bond markets [and] reflected in the way investors think about private assets and long-term investments, particularly in reassessing where it is considered safe to do business," he said.

The conflict proved that once historically stable environments, whether defined by geography or politics, are now less stable.

"One of the ramifications of what's happened in the Middle East is significant financial services development across the peninsula. I don't think anyone expected those areas to come under missile or drone attack. That was not a scenario many businesses setting up there had really thought through," he said.

Such developments underscore the need to incorporate geopolitical risk more systematically across both liquid and unlisted markets.

Despite these dynamics, Armitage said markets have yet to fully reflect the repricing required.

"I don't think you've necessarily seen that adjustment yet. I think the cost of capital is rising everywhere," he said.

"Do I think there will be an adjustment process over time? Yes, but I'm not entirely sure we're seeing that yet."

Armitage also flagged a growing disconnect between opportunity and risk, as investors seek exposure to markets being positively rerated despite the underlying geopolitical uncertainty.

This doesn't mean avoiding such investments opportunities, rather, finding ways to build protection and resilience around them. Diversification from a total portfolio perspective, he said, is one way.

Furthermore, investors should not ignore the speed at which assets respond to front-page news, whether on a data terminal or via the internet.

"We need to ensure that we're constructing portfolios that can absorb those very rapid developments," Armitage said.

FS Sustainability is a media partner of the 2026 RIAA Conference.