How geopolitical power shifts will affect investment opportunities

NextWave Private Equity

Famke Krumbmüller, EY EMEIA Leader, Global Geostrategic Business Group, joins Winna Brown to discuss how shifts in geopolitical power will affect growth and investment opportunities.

As a result of the war in Ukraine, three major power blocs are emerging, and it has become critical for companies to understand the allies of the markets in which they are invested.

1. Developed markets are leading one bloc, with the EU and the US having reached new levels of cooperation. Relatedly, the North Atlantic Treaty Organization (NATO) has been reinvigorated.
2. Russia is leading a small bloc of countries, including several autocracies.
3. A significant number of emerging markets, including China and India, are not aligning with either of these blocs, preferring to pursue a more neutral or transactional stance.

Several strategic sectors (i.e., farming and medical equipment, agriculture and food commodities, and critical infrastructure) have come into focus due to their relevance to national security and economic growth and the resulting geostrategic competition between these great powers in those strategic sectors. Cross-border deals have decreased as a share of global M&A in favor of more regional and intra-area deals. In this emerging multipolar world, companies are likely to see increased government intervention in their supply chains, limitations on or rejections of cross-border investments, export controls, restrictive trade measures and greater regulatory scrutiny.

Three priorities companies can incorporate to adjust to the new geopolitical environment include:

1. Assess current and future political risks annually.
2. Establish a cross-functional geostrategic team.
3. Refine the company strategy to match new geopolitical realities.