The Impact of Geopolitics on Investment Flows

In today's interconnected world, geopolitics has emerged as the primary driver of capital allocation, reshaping how investors think about risk and opportunity.

The era of simple offshoring for efficiency is over, replaced by a complex landscape where security and strategy dictate financial movements.

This shift demands a new approach to global investment, one that prioritizes resilience over mere cost savings in an unpredictable environment.

The New Geopolitical Landscape

Global foreign direct investment (FDI) is experiencing a profound transformation, influenced by rising tensions and strategic realignments.

Data shows that global FDI fell 3% in the first half of 2025, extending a two-year slump driven by uncertainty.

This decline masks a deeper fragmentation, with investment increasingly concentrated within geopolitical blocs rather than flowing freely across borders.

Companies are now optimizing for redundancy and geopolitical agility, moving away from traditional models focused solely on scale.

Governments are actively shaping flows through policies that support economic security and technological leadership.

• Geopolitical blocs are redefining investment corridors, especially in strategic sectors like semiconductors.
• The cost of fragmentation could range from $0.6 trillion to $5.7 trillion, highlighting the stakes involved.
• Investors must adapt to a world where tariffs and export controls are as critical as market fundamentals.

Macro Drivers: Conflicts and Trade Wars

Regional conflicts and trade tensions are key factors disrupting global investment patterns.

The Russia-Ukraine war has unsettled European energy security, leading to higher costs and redirected capital flows.

Similarly, Middle East tensions add to volatility in global markets, affecting investor confidence and risk assessments.

In Asia-Pacific, flashpoints like the South China Sea influence supply-chain decisions, prompting companies to reassess locations.

The US-China rivalry is a dominant force, reshaping sourcing patterns and manufacturing investments globally.

• Trade wars have led to a sharp drop in greenfield FDI into China from Western investors since 2019.
• Economic nationalism is stalling long-term investment decisions, contributing to weaker global growth.
• Investors must monitor these drivers to mitigate risks and identify emerging opportunities.

Quantitative Shifts in Global Investment

The data reveals stark trends in how capital is moving across regions and sectors.

In 2024, global FDI was $1.51 trillion, but underlying flows contracted by 11% when conduit hubs are excluded.

Regional divergence is evident, with Latin America seeing a 12% increase in inflows, while Africa experienced a 42% decline.

Sectoral shifts highlight winners and losers, with supply-chain-intensive manufacturing down 29% in project numbers.

In contrast, AI and digital sectors are thriving, with the US recording $237 billion in new greenfield projects in early 2025.

• Infrastructure project finance is down 11% globally, with sharp drops in least developed countries.
• Renewable energy investment fell significantly, highlighting challenges in sustainable development goals.
• Only sectors like health show positive trends, with a 37% increase in developing economies.

Winners and Losers in a Fragmented World

The geography of investment is shifting, creating clear beneficiaries and areas of neglect.

The United States has become a safe-haven for high-tech industries, with inbound investment reaching 44% of total US FDI.

China, meanwhile, has pivoted to outbound flows, reducing exposure to US assets and increasing lending to emerging markets.

Friend-shoring is benefiting countries like Vietnam and Mexico, which see inflows into electronic components and semiconductors.

However, many developing regions face challenges, with greenfield projects in least developed countries hitting lows.

• AI and semiconductor sectors are drawing massive capital, with over half of US greenfield value being AI-related.
• Defense and security-linked sectors are surging due to rising geopolitical fragmentation.
• Investors should focus on regions with stable alliances and growth potential in strategic industries.

Practical Strategies for Investors

Navigating this new landscape requires actionable insights and adaptive strategies.

First, diversify portfolios across geopolitical blocs to reduce reliance on any single region or corridor.

Emphasize investments in sectors aligned with economic security, such as technology and resilient infrastructure.

Monitor policy changes closely, as tariffs and investment screenings can abruptly alter market dynamics.

Consider the long-term implications of supply-chain reconfiguration, especially in manufacturing and tech sectors.

• Use risk assessment tools that incorporate geopolitical factors, not just economic indicators.
• Explore opportunities in emerging hubs that benefit from near-shoring and friend-shoring trends.
• Prioritize sustainability, as sectors like renewables face volatility but offer growth potential with proper support.

Future Outlook and Inspirational Insights

The future of global investment will be shaped by ongoing geopolitical realignments and innovation.

Despite challenges, this era offers opportunities for those who can adapt and think strategically beyond traditional metrics.

Embrace the shift towards resilience, viewing geopolitical risks as catalysts for innovation and new partnerships.

Invest in education and tools that enhance understanding of international relations and their economic impacts.

Remember that in a fragmented world, agility and foresight are key to unlocking sustainable returns and positive change.

By aligning capital with broader security and development goals, investors can contribute to a more stable and prosperous global economy.