Geopolitical Shadows: How Under-the-Radar Security Operations Reshape Emerging Market Asset Valuations in 2025

In 2025, emerging markets (EMs) remain a compelling investment proposition, with high-yield sovereign bonds trading at historically attractive levels and equity valuations offering a stark contrast to developed markets (DMs). However, beneath the surface of these fundamentals lies a growing web of under-the-radar security operations-ranging from gray-zone warfare to AI-enhanced cyberattacks-that are quietly reshaping risk profiles and asset valuations. These operations, often covert or ambiguous in nature, are destabilizing infrastructure, eroding investor confidence, and forcing corporations to recalibrate their resilience strategies.

Gray-Zone Warfare: The Invisible Front

Gray-zone warfare (GZW), a hybrid of conventional and unconventional tactics, has become a defining feature of 2025's geopolitical landscape. Unlike open conflict, GZW operates in the ambiguous space between peace and war, leveraging cyberattacks, sabotage, and disinformation to destabilize regions without triggering formal military responses. For example, in the South China Sea, China's use of maritime militias-disguised as civilian fishing vessels-has escalated territorial tensions while avoiding direct confrontation with neighboring nations, according to a USNI Proceedings article. These operations disrupt critical infrastructure, such as undersea cables and energy grids, creating ripple effects on trade and economic stability.

The financial implications are profound. A Securitas report highlights that GZW tactics targeting energy infrastructure in Southeast Asia have increased operational costs for corporations by up to 15%, as firms invest in redundant systems and real-time threat monitoring. Meanwhile, asset valuations in EMs have become more volatile, with investors factoring in the risk of prolonged disruptions. For instance, the MSCI Emerging Markets Index, trading at a forward P/E of 11.87, reflects a discount to DMs but is increasingly sensitive to geopolitical shocks, as a TCW update shows.

Technological Shadows: Drones, AI, and Cyber Espionage

The 2025 security landscape is also defined by the proliferation of advanced technologies. Drone-based espionage and sabotage have emerged as low-cost, high-impact tools for state and non-state actors. In Southeast Asia, nation-state groups like CL-STA-0969 have targeted telecommunications infrastructure with custom malware such as Cordscan and GTPDoor, enabling persistent access to critical networks, according to a SecurityAffairs report. Similarly, AI-driven cyberattacks-such as deepfake disinformation campaigns and generative phishing tools-are escalating in frequency, with global cyber incident costs projected to exceed $10 trillion annually, per a Viking Cloud report.

These threats are not confined to digital domains. In Nigeria, the Lakurawa terror group has exploited weak cross-border cooperation to conduct kidnaps and ambushes, destabilizing the Northwest region and deterring foreign investment, according to The Nation. Meanwhile, in the Caribbean, U.S. naval deployments targeting drug cartels like Tren de Aragua have intensified regional tensions, with military assets including F-35B jets and Tomahawk missiles deployed to counter narcoterrorism, as reported by AP News.

Regional Hotspots: Latin America, Africa, and the Middle East

The under-the-radar nature of these operations is particularly evident in Latin America and Africa. In Venezuela, U.S. covert CIA operations under the guise of a "war on drugs" have sparked regional outrage, with leaders condemning what they perceive as neocolonial interference, per Telesur. Such actions risk triggering military escalation, as seen in the near-freezing of U.S.-Venezuela communication and heightened regional military alerts.

In Africa, the U.S. is pivoting toward a "leaner, more lethal" security strategy, reducing its military footprint and ceding influence to China and Russia. This shift has created a security vacuum, with extremist groups like the Islamic State exploiting the void. For example, General Michael Langley of USAFRICOM has emphasized African ownership of security challenges, but experts warn that without sustained U.S. support, militant networks could expand, according to DW.

The Middle East, meanwhile, remains a flashpoint. U.S. military aid to Israel-exceeding $21.7 billion since 2023-has enabled operations across the region, while Iran's assertive rhetoric and irregular warfare tactics (including drone swarms) have heightened instability, as noted by Newsweek. These dynamics are particularly impactful for EM assets in the Gulf, where infrastructure projects and energy exports are vulnerable to sabotage.

The Investment Implications

For investors, the key challenge lies in distinguishing between short-term volatility and long-term resilience. While EMs offer attractive yield differentials and stable growth expectations, the indirect costs of security operations-such as increased operational expenses and reputational risks-cannot be ignored. A 2025 analysis by TCW notes that EM high-yield sovereigns remain in the 74th percentile of historical yields, but external risks like U.S. trade policy shifts could undermine this appeal.

However, the same analysis underscores that EMs are less exposed to tariffs than DMs, as many listed companies rely on domestic revenues. This structural advantage, combined with IMF support and disinflation trends, provides a buffer against downturns. The critical question is whether geopolitical risks can be effectively managed through corporate resilience planning and cross-industry collaboration, according to a Royal American report.

Conclusion

The 2025 investment landscape in emerging markets is shaped by a paradox: while fundamentals remain robust, under-the-radar security operations are creating a shadow economy of risk. From gray-zone tactics in the South China Sea to AI-driven cyberattacks in Southeast Asia, these threats demand a reevaluation of traditional risk models. Investors must adopt integrated frameworks that combine real-time intelligence, technological safeguards, and geopolitical foresight. For those who can navigate these shadows, EMs may still offer compelling opportunities-but only for those who see the risks clearly.