March 01, 2022
Mark Minchin

Geopolitical Risk and Your Portfolio


  • Current events in Ukraine are impacting major food, energy, and base metals supply chains and markets worldwide.
  • The situation remains highly fluid, with the direction of events highly uncertain.
  • Markets have and will continue to absorb the news and events and reflect them in prices. 
  • Investors should remain calm, focus on the long-term, and avoid the temptation to try to profit from, or immunise themselves from market movements.

Current events in Ukraine are having direct impacts on global markets. Russia and Ukraine are suppliers of raw materials, food an energy – essential for many supply chains.

Moreover, the War and sanction induced disruptions to these supply chains are occurring at a time when many supply chains are already heavily stretched due to the pandemic. These disruptions will have significant economic fallout, and are likely to affect global markets and your portfolio.

So, what are the key impact areas? An article by Business Standard highlights five key commodities that will be hit by Russia’s war on Ukraine:

1. Energy

According to Eurostat, around 30% of the EU’s petroleum oil imports and 40% of total gas imports come from Russia. For Estonia, Poland, Slovakia and Finland, more than 75% of their imports of petroleum oils originated in Russia.

While a complete suspension of Russian gas flows is unlikely now, even small disruptions will have a significant impact. Global gas reserves are low due to the pandemic and energy prices have already risen sharply, impacting consumers and industry. With gas an essential input to many supply chains, disruptions to such a fundamental supply will have widespread economic consequences.

2. Food

Global food prices rose sharply during 2021 due to everything from higher energy prices to climate change. Food producers are likely to come under further pressure as prices of key inputs rise in the wake of the War.

Russia and Ukraine account for around 29% of global wheat exports, while Ukraine alone makes up almost half of exports of sunflower oil. Both are key commodities used in many food products. If harvesting and processing is hindered in a war-torn Ukraine, or exports are blocked, importers will struggle to replace supplies.

Some countries are particularly dependent on grain from Russia and Ukraine. For example, Turkey and Egypt rely on them for almost 70% of their wheat imports. Ukraine is also the top supplier of corn to China.

3. Transport

 With global transport already severely disrupted in the aftermath of the pandemic, the war will likely create further problems. The transport modes likely to be affected are ocean shipping and rail freight.

Countries like Lithuania are expecting to see their rail traffic severely affected by sanctions against Russia. Even prior to the invasion, ship owners started to avoid Black Sea shipping routes, and insurance providers demanded notification of any such voyages. Although container shipping in the Black Sea is a relatively niche market on the global scale, one of the largest container terminals is Odessa. If this is cut off by Russian forces, the effects on Ukrainian imports and exports could be considerable, with potentially drastic humanitarian consequences.

Rising oil prices due to the war are a worry to shipping more generally. Freight rates are already extremely high and could rise even further.

There is also a worry that cyber-attacks could target global supply chains. As trade is highly dependent on online information exchange, this could have far-reaching consequences if key shipping lines or infrastructure are targeted. The ripple effects from a cyber-attack can be enormous.

4. Metals

 Russia and Ukraine are leading producers of metals such as nickel, copper and iron. They are also largely involved in the export and manufacture of other essential raw materials like neon, palladium and platinum. Fears of sanctions on Russia have increased the price of these metals. With palladium, for example, the current trading price of almost US$2,700 per ounce, up over 80% since mid-December.

Palladium is used for everything from automotive exhaust systems and mobile phones to dental fillings. The prices of nickel and copper, which are used in manufacturing and building respectively, have also been soaring. The aerospace industries of the US, Europe and Britain also depend on supplies of titanium from Russia. Boeing and Airbus have already approached alternative suppliers.

5. Microchips

Shortages of microchips were a major problem throughout 2021. Some analysts had been predicting that this problem would ease in 2022, but recent developments might dampen such optimism.

As part of the sanctions towards Russia, the US has been threatening to cut off Russia’s supply of microchips. But this rings hollow when Russia and Ukraine are such key exporters of neon, palladium and platinum, all of which are critical for microchip production. About 90% of neon, which is used for chip lithography, originates from Russia, and 60% of this is purified by one company in Odessa.

Alternative sources will require long term investments prior to being able to supply the global market. Chip manufacturers currently hold an excess of two to four weeks’ additional inventory, but any prolonged supply disruption caused by military action in Ukraine will severely impact the production of semiconductors and products dependent on them, including cars. 

So how do I factor these risks into my Portfolio Strategy?

With these risks in mind, the natural question to ask is: how should I be managing my portfolio through this disruption?

In a recent interview, Dan Kemp, Morningstar’s Global CIO said that there are four ways investors typically handle geopolitical risks. He notes some of them are wiser than others:

1.Predict and Gamble

 “Investors may try to predict the outcome of a geopolitical issue and then guess the impact it will have on investment markets. If done successfully, it can make them seem to be a money-making master”, Kemp says.

“But generally people get it terribly wrong. Positioning portfolios on this basis is a very dangerous game that is unlikely to align with investor goals”.

2. Move to Cash for Protection

Faced with a specific crisis, some investors prefer to sit it out and wait.

“This is loss aversion in action”, says Kemp.

“If the worst-case scenario prevails, they feel like a conservative genius, having protected capital during the dark turning point. However, the problem with this approach is that the market is always throwing potential curveballs.
“An investor who avoids the market based on any potential event-risk could end up sitting in cash on a semi-permanent basis. This approach can be the most dangerous of all, with inflation further eroding cash returns and implying that one would be better off holding on and riding through short-term volatility”.

3. Holding Tight

A buy and hold mentality acknowledges one’s inability to predict events, and may help to keep investors’ minds trained on the long-term.

“This is far superior to the prior two approaches, not least because it keeps costs and turnover low, which are admirable traits that will ultimately benefit long-term investors”, says Kemp.

“That said, investors are inherently bad at it. Evidence suggests investors are susceptible to change amid market panic. No-one likes to lose 50% of their nest egg and that can move investors into the ‘protection first’ mode noted above.”

4. Valuations & Fundamentals

This final approach considers the impact geopolitical risks would have on the intrinsic value of investment markets, and is based on a monitoring of the difference between price and that fundamental baseline.

This approach is grounded in the belief that market prices can, at extreme times, deviate substantially from fundamental value – and therefore there is an opportunity to sell high and/or buy low.

“This is akin to the ‘Mr Market’ analogy endorsed by Benjamin Graham and Warren Buffett, where an emotional human can often sell at prices that don’t reflect the underlying value”, says Kemp.

“This strategy is logically sound, but it requires a rational framework and enforced discipline”.

Which Strategy is Best?

Kemp argues that a combination of the latter two approaches is best, as “they help investors to control their behavioral urges while concentrating their analysis on what matters most.”

“The idea is to avoid action, except where it presents an opportunity, because fear-driven selling is rarely a good idea,” Kemp says.

At Minchin Moore we employ a similar philosophy to that espoused by Kemp, albeit our implementation and approach to valuing markets incorporates some pragmatic differences.

Unlike Graham and Buffet, we recognise the fact that very few investors have the specific acumen or emotional fortitude to consistently get the stock selection, valuation, and timing right.

Rather than picking stocks and timing markets, our evidence-based approach looks to systematically “reduce” allocations to investments when prices are high (typically following a period of outperformance) and “top-up” allocations when prices are weak (typically following a period of underperformance). Where a highly diversified approach, across multiple asset classes is employed, we can benefit from the ongoing disparity in returns that occurs from year-to-year across different asset classes. 

This approach is implemented via a rules-based, portfolio rebalancing technique that is grounded in the belief that whilst capital markets can deliver erratic returns in the short term, in the longer term capitalism will prevail, with each of the key investment pillars – stocks, bonds and real estate – delivering sound long-term returns to patient investors.


Personal advice requires the provider to act in the client’s best interests and take into account the client’s circumstances. These rules do not apply to general advice. The information and views expressed in this article are general in nature only (general advice). We have not taken into consideration any of your personal objectives, financial situation or needs. Before taking any action, you should consider whether the general advice contained in this communication is appropriate to you having regard to your circumstances and needs, and seek appropriate professional advice if you think you need it.


  1. Business Standard, “5 essential commodities that will be hit by Russia’s war on Ukraine“, 25 February 2022.
  2. MorningStar, “How to Handle Geopolitical Risk”, Marco Caprotti, 14 February 2022

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