What nine geopolitical shocks did to the ASX

On 9 March, a week into the war in Iran, the ASX 200 fell almost 3% which was the biggest one-day drop in almost a year. Sharesight users made almost 25,000 trades that day, nearly 80% more than on a typical weekday, with two-thirds of them buys.

Those trades feature in Morningstar’s State of the Australian Investor 2026 report, which found geopolitical tension was biggest investor concern. For investors weighing whether the news should change their portfolio, this article looks at how investors in the report behaved when prices fell, and how the ASX has performed around nine geopolitical and trade shocks since 2001.

Each of these events involved loss of life and hardship that no market figure captures. This article looks only at the impact on investors’ portfolios and takes no view on the conflicts themselves.

Why are investors worried about geopolitics?

We surveyed more than 1,500 investors for the report, most of them engaged, self-directed investors. Respondents could select up to three concerns. More than 52% selected geopolitical tensions, followed by inflation at 48% and recession risk at 42%. When asked which concerns had become more important over the previous year, geopolitical tensions again led at 46%.

Geopolitics don’t just impact markets. They also can strain household budgets. With the war in Iran still unresolved, Brent crude traded at around US$115 a barrel in late October, and higher fuel prices contributed to an 8.7% rise in transport costs over the year to September.

What did Investors do during recent selloffs?

Concern has not kept investors out of the market. Sharesight data for 97,000 investors, analysed in the report, shows they bought more than they sold in each of three recent selloffs.

Source: Morningstar and Sharesight, The State of the Australian Investor 2026.

On the busiest day of each sell-off, the buys outnumbered sells by roughly two to one. That is close to normal for this group. On an ordinary weekday, Sharesight users made around 2.1 buys for each sale. What increased during each sell-off was the number of investors trading, while the balance between buying and selling stayed broadly the same.

Buying after a fall has paid off recently because markets recovered. But it is still a decision prompted by the news, and recoveries have varied in length, as the ASX data below shows.

How has the ASX performed during geopolitical shocks?

To answer this, we used data for the State Street SPDR S&P/ASX 200 ETF (ASX: STW), which tracks the S&P/ASX 200 and has traded since 2001. The figures are total returns, including distributions, measured from the last close before each event.

Source: Morningstar. Data as of 28 October 2026. Largest fall is the lowest close in the three months after each event. Days to recover are calendar days until the ETF closed above its pre-event level. Past performance is not a reliable indicator of future performance.

In most cases the impact on the ASX was modest. The median fall was 2.5%, and the median time to recover was 25 days. Of the eight events with a full year of data, the ETF was higher 12 months later in seven. The exception though, the September 11 attacks, came during a broader global downturn in 2001 and 2002. When the Iraq war began in 2003, the ASX closed slightly higher.

The Iran war in 2026 was different. The fall of 8.4% was the second largest in the table, and the recovery took 158 days, from late February to early August. Other factors also affected markets in each of these periods. It is impossible to isolate the impact of a single event on complex markets.

How did different investments perform during the Iran war sell-offs?

How far a portfolio fell depended on what it held. The chart shows total returns for several widely held investments from the last close before the war, on 27 February, to the ASX’s low on 23 March 2026.

Two investments commonly considered defensive offered little protection. Gold fell about 14%, about as much as resources share, and Australian bonds fell 2.3% as markets priced in higher interest rates.

A weaker Australian dollar cushioned losses on unhedged global shares (VGS), which fell 5.5%, compared with 7.1% for the currency-hedged equivalent (VGAD). A falling dollar lifts the Australian-dollar value of overseas holdings; a rising dollar has the opposite effect.

The global energy ETF, the only investment in the table to rise, benefited from higher oil prices.

How did the selloff change valuations?

Our analysts believed investors overreacted to the Iran war as prices fell further than any changes to our valuations. On 31 March 2026, 55% of Australian and New Zealand stocks our analysts cover had 4- or 5-star ratings, the highest share since the April 2025 US tariffs. These ratings indicate prices below analysts’ fair value estimates, allowing for uncertainty.

Giving each company equal weight, stocks traded 11% below fair value in March. That discount narrowed to 3% by July as prices recovered.

The discounts were uneven. In April, our analyts noted that smaller companies were deeply discounted while larger companies traded slightly above fair value. By July, weighting companies by size put the market at a 10% premium to fair value.

What does this mean for investors?

• Investors in Morningstar’s survey are more concerned about geopolitics than any other risk.
• Across nine shocks since 2001, the ASX has historically recovered its losses, in most cases within weeks. In 2026 the recovery took five months.
• More investors traded during recent sell-offs, with a similar balance of buying and selling to ordinary trading days.
• According to our analysts, the sell-off left more than half of covered Australian and New Zealand stocks undervalued at the end of March.

The report also found that median returns fell as investors traded more frequently in both FY2025 and FY2026. Concern about world events is reasonable. Whether it should change a portfolio depends on the investor’s goals and how long they plan to invest.

Geopolitical volatility is likely to continue. Ensuring spending needs over the next several years are kept out of the market can allow investors to focus on long-term goals. For investors with that foundation volatility can be an opportunity.

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