Geopolitical risk and its impact on capital allocation and stock market performance

This study examines the impact of escalating geopolitical risks on investment patterns, private savings, and stock market performance in China. Empirical analysis shows that heightened geopolitical tensions are associated with increased private sector savings and a reduction in capital investments, potentially constraining economic growth. In addition, geopolitical shocks tend to exert negative impacts on China's stock market index, with recent years reflecting an intensified sensitivity of these financial indicators to geopolitical risks. Using dynamic parameter models, the study uncovers the evolving responsiveness of key economic variables to geopolitical risk shocks. The findings indicate that as risks accumulate, the adverse impacts on investment and market performance intensify, highlighting the growing vulnerability of financial markets. Based on these results, this paper emphasizes the need for targeted structural policies to mitigate the negative effects of geopolitical risks, optimize financial resource allocation, and strengthen economic resilience. Such strategies can support the development of emerging industries while fostering stability and sustainable growth in an increasingly complex global political and economic environment. Overall, this research provides insights into the mechanisms through which geopolitical risks influence capital allocation and financial markets from a dynamic perspective and offers a basis for policy formulation.