Market opportunities and risks: Investors caught between geopolitical uncertainties

Market opportunities and risks: Investors caught between geopolitical uncertainties

Roswitha Klein, director of Hypo Vorarlberg in Vienna, describes the current investment market as characterized by an ambivalent mood. Investors are showing growing uncertainty, which is primarily triggered by geopolitical risks and US economic policy. These uncertainties are in the context of a weakening economy and the ongoing monetary policy easing measures in Europe, which at the same time raise expectations of new growth impulses. The press reports that Donald Trump's trade policies have led to significant volatility in stock markets, calling into question the role of classic "safe havens" such as the US dollar and government bonds.

Analysts note surprising market reactions, including a depreciation of the dollar despite punitive tariffs. Looking ahead, European stocks were able to benefit from this situation, at least in the short term. However, in the long term, the US markets are expected to return. In this context, the possibility for Europe to gradually emerge from its weak growth is also being discussed. The expected interest rate cuts by the European Central Bank (ECB), which may stimulate investment, play a central role.

Growth impulses and risks

Early indicators, such as rising loan volumes, point to increasing momentum. The global industrial cycle could support the economy, while increasing consumer spending is observed, supported by real wage growth. However, the zenith of this positive development appears to have been passed. A sustainable upswing therefore depends on the continuation of these economic impulses.

Large armament investments in Europe have the short-term effect of an economic stimulus program, but the shift to a “war economy” is also perceived as a burden on other important issues, such as climate protection. For 2025, investors are recommended to exercise increased caution on the capital markets, as above-average price gains in recent years - especially in tech stocks - are considered unsustainable. At the same time, high valuation levels are highlighted, which could potentially lead to market corrections.

Financial market situation and stability

Despite the uncertainties described, the situation on the financial markets in 2024 was predominantly positive. Financing conditions have improved thanks to the successful fight against inflation and a turnaround in interest rates by the central banks. GDV notes that there is no current acute stress in the financial system and that the resilience of financial institutions has been demonstrated in recent months. The insurance sector is also robust.

Nevertheless, risks in the financial system remain high, particularly from geopolitical conflicts as well as political risks such as the upcoming US election and the possibility of the traffic light coalition failing in Germany. These factors increase macroeconomic uncertainty. In particular, the weak growth in Germany and the euro area is seen as a further risk factor. In this context, reducing bureaucracy is seen as important in order to remove structural obstacles to growth. The focus on systemic risks resulting from excessive or complex regulation could further impact financial stability in the future.

In summary, strengthening financial stability requires regulation that is oriented towards material risks and takes into account the principle of proportionality. Investors are encouraged to create a diversified portfolio to achieve more stable returns with more moderate risk and to adopt a multi-asset approach that includes stocks, bonds, commodities and precious metals.