Geopolitical shocks create real uncertainty for small business. But knee-jerk reactions can create more problems than they solve. Here is the disciplined approach that holds up under pressure.
What’s happening: Rising tensions in the Middle East have sparked significant market volatility, with the ASX experiencing its largest single-day drop in almost a year before partially recovering.
Why this matters: Darren Connolly, CEO of InvestmentMarkets, says the businesses and investors best positioned to navigate periods like this are the ones that resist the urge to make reactive decisions and maintain a disciplined longer-term strategy instead.
The past week has been an unsettling one for anyone watching Australian markets. Rising tensions across the Middle East have triggered concerns about potential oil supply disruptions through the Strait of Hormuz, one of the world’s most critical energy transit routes, sending the ASX to its largest single-day fall in almost a year before a partial recovery the following day.
For small business owners already managing rising input costs, a potential rate rise and stretched consumer confidence, another layer of uncertainty is the last thing the outlook needed.
Darren Connolly, CEO of InvestmentMarkets, an Australian platform connecting investors with managed funds, private equity and alternative assets, says the instinct many people feel in moments like this, to do something, is both understandable and worth examining carefully before acting on.
What the markets are doing right now
The immediate market reaction to the Middle East conflict has followed a familiar pattern. Concerns about oil supply have pushed energy prices sharply higher, with crude prices rising approximately US$20 to US$25 per barrel over the past week. That has flowed through into broader market anxiety, reflected in the ASX volatility and in the increased interest InvestmentMarkets has observed from investors reassessing portfolio risk on its platform.
For small businesses with any exposure to fuel, freight, energy costs or import supply chains, those price movements are not abstract. They are landing directly on the cost side of the ledger at a moment when margins are already under pressure from domestic inflation and rising interest rates.
Connolly’s central argument is that geopolitical shocks, as disruptive as they feel in the moment, are something markets have absorbed many times before, and that reactive decisions made in response to short-term noise often create problems that outlast the original event. “When a conflict or major global event emerges, the first instinct for many investors is to adjust their portfolio immediately,” Connolly said. “Markets can be very volatile in the short term, but geopolitical shocks are something markets have experienced many times before. In most cases they don’t fundamentally change the long-term forces that drive investment returns.”
The same logic applies to small business owners making operational and financial decisions under pressure. Pausing an expansion, pulling back on capital investment or restructuring financing in response to a week of market volatility can lock in a conservative posture at exactly the moment when competitors who hold their nerve may be better positioned to move.
Connolly is clear that geopolitical tension is real but contextual. “Geopolitical tension can certainly create periods of uncertainty, but it’s only one factor in a much bigger system,” he said. “Trying to reposition a portfolio every time a global event unfolds can lead investors to make reactive decisions that don’t always align with their longer-term objectives.”
One of the most concrete risks he identifies is panic selling, the decision to exit positions or crystallise losses in response to falling markets, only to miss the recovery that follows. “When investors sell, they may crystallise losses and miss the rebound when markets recover,” he said.
The case for a sleep-well strategy
Connolly’s alternative to reactive decision-making is what he describes as a sleep-well portfolio, a structure built to withstand periods of market stress without forcing the holder to act on short-term noise. The principle translates directly to how small business owners might think about their financial position more broadly.
“A well-diversified portfolio is designed to manage exactly these kinds of events,” he said. “Diversification across sectors, asset classes and geographies helps smooth out shocks when markets become unsettled.”
For small business owners, the equivalent thinking might involve maintaining adequate cash reserves to absorb cost spikes without emergency financing, avoiding over-concentration in a single supplier, market or revenue stream, and ensuring that any financing arrangements are structured to withstand a period of elevated rates or reduced consumer spending.
“If investors feel compelled to act every time markets become volatile, it’s often a sign the portfolio isn’t properly diversified,” Connolly said. The same prompt is worth applying to business structure. If every global shock forces an immediate operational response, it may be a signal that the underlying business position needs attention rather than a reason to react to the shock itself.
What small business owners should focus on instead
Connolly’s advice for navigating the current environment comes back to three principles that hold regardless of what is happening in global markets: discipline, diversification and patience. “Periods like this are a reminder that investing is a long-term exercise,” he said. “Volatility is the price of admission and the fundamentals of diversification, discipline and patience matter most during these times.”
For small business owners, that means keeping focus on the operational fundamentals, managing costs, maintaining customer relationships and protecting cash flow, rather than making structural decisions in response to headlines that may look very different in three months’ time.
Markets are processing a wide range of risks at any given time, Connolly notes, from interest rates and inflation through to political developments around the world. The Middle East conflict is one input into that system, not the whole story. For small businesses that have spent the past few years navigating a pandemic, a cost of living crisis and a rate cycle, that perspective is hard-won but worth holding onto. The businesses that come through periods of volatility best are rarely the ones that moved fastest. They are the ones that stayed clearest about what they were building and why.
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