Donald Trump continues to move capital markets. With the arrest of Venezuelan President Nicolás Maduro by US special forces and the demand to buy Greenland – under threat of massive punitive tariffs against European NATO allies – the US administration has ushered in a new era of “transactional geopolitics.”
While many market participants had hoped for a lasting calm in the trade war following the conclusion of numerous individual agreements, the announced special tariffs of 10 percent from February 1 and 25 percent from June 1 not only caught the affected countries unprepared—including Germany, France, Denmark, and the United Kingdom—but also visibly shook the stock and bond markets. Both responded to the escalation with losses, before the announcement in Davos that further tariffs would be waived led to visible relief.
For long-term value investors, geopolitics was historically considered mere “background noise” that could be ignored in the context of corporate analysis. Even after the rapid recovery of the markets following last year’s “Liberation Day,” many market participants saw the old conviction vindicated: that political markets are inherently short-lived. However, the paradigm shift in global politics that has been ongoing for a year now is necessitating a reassessment. Whereas political risks tended to occur sporadically in the past—for example, in the context of elections or military conflicts—they have taken on a structural and systemic character over the past twelve months.
As fundamental investors, we cannot base our decisions purely on geopolitical speculation. Outstanding business models, reliable cash flow forecasts, and company-specific events remain at the core of our in-depth fundamental analysis. Any prediction about the next steps of individual players in global politics is doomed to failure. However, when arbitrary tariffs are used as a political weapon, the independence of the US Federal Reserve comes under pressure, and industrial companies are pushed into “reshoring” – sometimes contrary to economic logic – one cannot turn a blind eye to geopolitics.
Investors who want to maintain their fundamental approach must sharpen their analytical tools. Value investors, too, need to examine how “politically resilient” individual business models actually are in today’s environment. Locally operating champions that are not dependent on fragile global supply chains offer a much smaller target than complex global industrial conglomerates. In addition, companies with genuine pricing power are coming into focus, as they are able to pass on rising tariff costs directly. A mental stress test helps to evaluate the resilience of a model even in the event of a total trade stoppage with China, while a detailed analysis of value chains reveals whether a company can continue to operate soundly even in the face of increasing military escalation.
Our analysis remains consistently focused on individual companies. In addition to attractive valuations and specific catalysts, however, business models should also demonstrate geopolitical robustness that allows them to operate successfully even in extreme political scenarios.
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