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By Céline Vidal, Director, Valuation Advisory Services
Escalating geopolitical, economic and political tensions have been at the heart of the news over the last two years. The result has been heightened instability in the financial markets, with exacerbated volatility and an increase in the cost of risk. The slowdown in the U.S. Federal Reserve’s ‘quantitative easing’ aimed at containing runaway inflation has resulted in a rise in key rates and an overall contraction in the economy. As a result, investors have been adopting a cautious, wait-and-see stance.
The repercussions are all the more obvious in the world of private equity, where the contraction in deals since 2023 has continued unabated. A modest recovery is now visible and investor hesitation is easing, with a resurgence in financing and deal-making since the end of the first half of 2025. This rebound is concentrated in specific sectors: big tech, artificial intelligence (AI), semiconductors and cryptocurrencies are all gaining momentum. Debt funds are also experiencing growth, benefiting from regulatory changes and reflecting a short-term investment logic among investors reluctant to commit long-term in an increasingly uncertain environment.
The impact of geopolitical tensions on valuations needs to be examined sector by sector, with some significant variations.
Technology
In the field of technology, areas such as driver seeding, AI and cybersecurity have seen renewed growth in the second half of 2025, following a slowdown earlier in the year.
- The valuation of companies making conductive seeds remains uncertain because of export restrictions and supply chain risks
- Cybersecurity is being massively strengthened in order to prevent any attack that could undermine the sovereignty of data held by governments, businesses and consumers
- Valuation trends in these innovative sectors should be closely monitored, as the risk of a speculative bubble cannot be ruled out
Finance and insurance
The finance and insurance sectors were also negatively impacted in the first half of the year. Macroeconomic uncertainty has led to an increase in risk in the markets, with the cost of risk rising. However, risk appetite is now rising again, as reflected in the rising prices of cryptocurrencies and valuations of companies in AI and semiconductors. A modest recovery in M&A activity and investment is also underway, with confirmation expected by year-end.
Transport and logistics
The transport and logistics sector has suffered to a similar extent, with increased costs caused by maritime detours, rising fuel costs and the reduced fluidity of world trade having a direct impact on the margins of companies in the sector.
Energy
The energy sector, meanwhile, is on the front line with the war in Ukraine. Europe’s dependence on Russian gas has been highlighted in Germany, where many households have had to opt for alternative heating options during the winter. This dependence is persistent and underpinned by the challenge of finding alternative sources of energy, such as renewable energies, which are difficult to produce on a large scale just-in-time.
Gas prices in France have risen significantly since the beginning of the year, with increases ranging from 6% to 10%. However, electricity prices have benefited from a regulatory drop with the introduction of the “tarif bleu” in February 2025.
Defence and security
In the defence and security sector, the major powers are increasing their military budgets in anticipation and prevention of current and future armed conflicts: the war in Ukraine, the conflict between Israel and Gaza, and the withdrawal of the U.S. from NATO are just a few examples. The result has been a substantial rise in the valuations of arms companies such as Thalès, whose share price rose by 60% during the first half of 2025. Since then, valuations have remained stable, indicating sustained investor interest in the sector.
Looking ahead
Geopolitical instability and the resultant market volatility have been making investors cautious. However, the emergence of growth sectors as well as new opportunities in traditional sectors are creating a paradigm in which the valuations of certain sectors are exploding. This is a source of hope for those most affected, provided they adapt well to these new challenges. For example, CMA-CGM took advantage of the uncertainty surrounding tariffs to sign a major deal with the United States.
The outcome of U.S. tariff negotiations by the end of 2025 will also play a key role in shaping inflation trends and the direction of interest rates.
The resolution of international conflicts is a prerequisite for a full resumption of worldwide growth, the momentum of which has been altered since the COVID period. In the meantime, firms must navigate the volatility and seize the opportunities where they exist.
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