CIO suggest a selective approach to risk, including some defensives like consumer staple stocks or capital protection strategies. (ddp)

Russia-Ukraine war escalation risks.


  • The war in Ukraine has disrupted global supply chains, added to a global inflationary shock, and forced a rethink of energy security.
  • Escalation remains a risk too—with NATO allies imposing new sanctions and export controls in February, and the US warning China against supplying Russia with lethal aid.

Geopolitical and domestic risks centered on China.


  • President Xi’s consolidation of power last year raised investor concerns over mainland China's reopening, economic growth, and the role of the private sector.
  • US-China relations face unresolved disputes over advanced technology export controls, with the recent high-altitude balloon incident adding to tension.
  • Taiwan remains a flashpoint, with implications for chip production and funding, supply chains, national security, and trade policy.

Risks of government and central bank policy missteps.


  • The Fed has pushed back on more dovish market pricing for its policy path, leading to periodic bouts of heightened cross-asset volatility.
  • The US House is setting up a for showdown with the White House over the federal budget and debt ceiling, which may affect markets.
  • Heightened volatility in the yen has complicated business planning and spending in the Japanese economy, while also dissuading some foreign investors.

Did you know?


  • 55% of investors ranked geopolitical risk as a top concern in 4Q22, according to a UBS investor sentiment survey.
  • Rather than disengaging from markets and sacrificing long-term returns, we recommend more selective exposure to equity markets, including some defensive picks to reduce portfolio volatility.
  • Watch our Deep Dive video on the era of security.

Investment View


We suggest a selective approach to risk, including some defensives like consumer staple stocks or capital protection strategies. Selective hedge fund exposure could also help insulate portfolios, while energy exposure may hedge some geopolitical risks.


Main contributors - Daisy Tseng, Dominic Schnider


Content is a product of the Chief Investment Office (CIO).


Original report - What risks might derail markets in 2023?, 27 February 2023.