How geopolitical tensions, cryptocurrencies and emerging sectors are reshaping investment strategies

Given the recent geopolitical tensions, energy crisis and inflationary pressures, what have you observed in terms of investor behavior?

In recent years, geopolitical and economic challenges have caused many investors to pivot toward more conservative assets and strategies. This shift has driven interest in «safe havens,» which are characterised by low volatility during uncertainty and a reduced likelihood of significant losses. Assets like gold and short-term US Treasuries have experienced notable growth in demand. Since 2022, the value of gold has surged over 40 per cent, while investments in US Treasuries have risen by 56 per cent, reaching $6.18 trillion.

However, the landscape is always changing. Recently, the market entered a ‘risk-on’ phase, with renewed investor appetite for higher-risk assets. This renewed interest is evident in the growing preference for small-cap companies, as funds gradually move away from traditional conservative investments.

The energy sector has experienced considerable fluctuations as well. The energy crisis initially caused a sharp spike in energy prices, drawing significant investor attention to oil and gas stocks. This enthusiasm led to an 80–100 per cent surge in the stock prices of companies in the sector. Yet, as the crisis stabilised and new supply sources emerged, energy prices faced downward pressure. This stabilisation has resulted in a 10–20 per cent decline in oil and gas stock prices from their peak.

Are investors becoming more risk-averse? Or are they looking for opportunities in volatile markets?

In the last few months, there has been a marked increase in risk-on sentiment among investors. This shift is evident in several critical areas as investors seek high returns.

Increased interest in equities. There has been a surge in enthusiasm for equities, with major indices posting significant gains since the beginning of the year. The S&P 500 has risen over 25 per cent, while the NASDAQ Composite has climbed more than 32 per cent, largely driven by the rapid development of artificial intelligence (AI) and its impact on a wide array of companies. Moreover, many investors are turning to small-cap stocks in pursuit of higher returns, albeit with added risk. As a result, the Russell 2000 Index has risen by 22 per cent this year.

Renewed focus on cryptocurrencies. The cryptocurrency market has seen a resurgence, driven in part by the introduction of exchange-traded funds (ETFs) linked to bitcoin (BTC). These ETFs have made it simpler for both institutional and retail investors to access the crypto space, leading to $28.2 billion in investments. Bitcoin itself has hit a record high of over $100,000, reflecting robust demand and interest in crypto-related assets.

Movement away from traditional safe havens. Despite the US Federal Reserve reducing the federal funds rate by 0.75 per cent since September, the yield on 10-year Treasuries has increased from 3.65 per cent to 4.4 per cent, indicating a decline in price. This trend reveals a broader shift in capital allocation away from conservative fixed-income instruments and into riskier assets.

Has your firm adjusted its investment strategies to reflect these changing preferences? What strategies would you recommend to investors navigating this period of uncertainty?

As market dynamics evolve, we continuously adjust our strategies to align with current opportunities. Recently, our focus has shifted to small-cap companies with higher risk profiles, especially in the emerging aerospace sector. The aerospace industry has started to draw significant investor interest, driven by SpaceX’s groundbreaking achievements.

SpaceX has made impressive strides, such as successful test launches of its reusable Starship rocket and the deployment of the Starlink satellite network. These milestones underscore the immense potential of the sector. Starlink, which has now surpassed three million subscribers, has achieved operating profitability, further validating aerospace investments. These accomplishments have attracted investor attention to the sector, which remains relatively underexplored.

Our team has identified promising companies within the industry, including Rocket Lab, Redwire and Intuitive Machines. Since July, we have actively recommended these companies to our clients. The results have been remarkable: Rocket Lab’s market capitalisation has increased by more than 200 per cent, while Redwire and Intuitive Machines have delivered returns exceeding 50 per cent. Additionally, over the summer, we advised clients to invest in the Fidelity Bitcoin ETF, betting on Donald Trump’s potential return to the US presidency and its impact on bitcoin’s demand. This strategic move proved successful, yielding substantial returns for our clients.

How do you see the potential of cryptocurrencies and digital assets as investment vehicles? Are there any risks associated with these investments that investors should be aware of?

The cryptocurrency market continues to gain momentum and is generally divided into three segments: bitcoin, real crypto projects and meme coins. Bitcoin has seen a resurgence in investor loyalty, largely fueled by the introduction of regulated ETFs. These financial products have simplified access for both institutional and retail investors, paving the way for significant fund inflows. Additionally, discussions from US leadership, including Donald Trump and his team, about potentially integrating bitcoin into the economy have further strengthened sentiment. If this trend persists, bitcoin could reach new all-time highs. However, BTC investments remain high-risk and can be likened to a game of musical chairs, where sudden market sentiment shifts may leave the least prepared investors exposed to significant losses.

Some real crypto projects generate cash flow, making them similar to traditional company shares. This applies to projects offering rewards for holding coins or implementing coin buyback mechanisms. Notable projects in this category include BNB Chain, Solana, Optimism and Cosmos. These assets present potential investment opportunities but require diligent research and sound risk management. The segment typically mirrors bitcoin’s market dynamics but with greater volatility, making careful investment essential.

Meme coins are a separate and highly speculative category, often based on internet memes and lacking any fundamental value. Nearly 99 per cent of these assets lose value within six months of their launch. Even when adopting a venture capital-style approach – spreading investments across multiple meme coins in hopes of finding a standout performer – achieving positive returns is highly unlikely. The sheer volume of new meme coins flooding the market makes this strategy incredibly risky and generally unviable for serious investors.