China's Military Escalation Near Taiwan and the Resilience of Global Asset Classes During Geopolitical Shocks

The intensifying military posturing by China near Taiwan has emerged as one of the most significant geopolitical risks for global markets in 2023–2025. As Beijing escalates coercive tactics-including cyber intrusions, economic pressure, and political warfare-investors are recalibrating portfolios to account for heightened volatility. This analysis examines the resilience of key asset classes during this period of uncertainty, drawing on recent data and policy developments to assess how markets are adapting to the evolving China-Taiwan standoff.

Gold and Defensive Equities: Safe Havens in a Turbulent Climate

Geopolitical tensions have driven a pronounced shift toward safe-haven assets. Gold prices surged to record highs, reaching $4,267 per troy ounce in late 2025, as investors sought refuge from rising risks. This trend aligns with broader market rotations into defensive equities, particularly in sectors like Utilities, Health Care, and Consumer Discretionary, which have demonstrated relative resilience amid volatility. In China, the CSI Defense Index rose over 2% following U.S. arms sales to Taiwan, underscoring the sector's sensitivity to geopolitical developments.

The underperformance of high-yield debt and growth equities further highlights the flight to safety. Investors are increasingly prioritizing stability over growth, a shift reinforced by expectations of Federal Reserve rate cuts and the perceived fragility of tech-driven markets.

Government Bonds: Yields Rise as Confidence Wanes

Taiwan's government bond yields have climbed in response to escalating geopolitical risks, reflecting declining market confidence in the island's fiscal stability. The August 2022 visit by U.S. House Speaker Nancy Pelosi triggered a persistent increase in yields, with short-term risk premia turning positive after 11 months. This suggests that investors anticipate higher borrowing costs for Taiwan as tensions with China persist.

In contrast, China's bond market has experienced a bull run in 2025, driven by aggressive fiscal and monetary easing. Falling yields in the mainland reflect a more accommodative policy environment, though structural challenges in the property sector continue to weigh on broader economic sentiment.

Real Estate: Policy Interventions and Structural Weaknesses

China's real estate market remains a mixed bag. While government interventions-such as relaxed mortgage terms and urban renewal programs-have stabilized secondary sales, primary market activity remains weak. Surging secondary sales are projected to generate RMB 17 trillion in 2025, yet first-tier cities like Beijing and Shanghai continue to see year-on-year declines in second-hand home prices, ranging from -1.7% to -6.0%.

Real estate developer stocks, however, have struggled. By September 2025, newly built home prices in first-tier cities had fallen 0.7% year-on-year, while second-hand prices dropped 3.2%. Liquidity constraints and delayed project deliveries have eroded investor confidence, despite targeted subsidies and easing measures. Analysts project a gradual stabilization by 2027, but the sector's recovery remains uneven.

Energy Commodities: Vulnerabilities and Strategic Shifts

Energy markets are particularly exposed to the China-Taiwan standoff. Taiwan's reliance on imported LNG-accounting for nearly half of its electricity generation-has made its energy infrastructure a focal point of Chinese coercion. Cyberattacks on energy systems have doubled year-on-year, while simulated scenarios suggest that a disruption in LNG supply could reduce grid capacity by 50%, forcing painful trade-offs between public health and industrial output.

Coal imports into Taiwan have also declined sharply, with November 2025 imports hitting a 9-month low of 3.45 million tonnes-a 17.41% year-on-year drop. Meanwhile, China's domestic coal prices surged to $154/MT in June 2025, driven by surging demand and production restrictions. These dynamics highlight the fragility of energy supply chains in the region.

The U.S. Dollar: A Mixed Picture

The U.S. dollar experienced a brief surge in Taipei trading in December 2025 amid economic optimism, though broader trends point to a weaker greenback. Aggressive U.S. tariff policies and expectations of Federal Reserve rate cuts have pressured the dollar, which was on track for a significant annual decline in 2025. However, geopolitical developments-such as the U.S. arms sale to Taiwan-have provided temporary support in regional markets.

Conclusion: Navigating a High-Risk Environment

The China-Taiwan standoff underscores the growing importance of geopolitical risk analysis in asset allocation. While gold and defensive equities have emerged as resilient assets, vulnerabilities in energy and real estate markets highlight the need for diversified strategies. Investors must remain vigilant as tensions evolve, balancing short-term safety with long-term growth potential in an increasingly fragmented global landscape.