In early 2025, global investors found themselves navigating a landscape where uncertainty and opportunity coexisted. While geopolitical tensions intensified and protectionist policies emerged, cross-border dealmaking displayed surprising resilience in early 2025, defying conventional expectations. With global direct transaction activity reaching US$185 billion in Q1 2025—a 34% year-over-year rise—this first quarter marked the highest level of dealmaking since 2022.

Despite a 17% drop in overall deal volumes, transaction values edged upward by 5% between 2023 and 2024. Regional disparities emerged, with the Americas leading in transaction volumes and Asia-Pacific nations like Japan and India registering 24% and 20% growth respectively. This uneven yet robust recovery underscores both the complexity and the promise inherent in cross-border investment today.

Geopolitical headwinds and policy shifts

Investors now confront heightened geopolitical tensions and protectionism that shape every decision. Major economies are recalibrating their trade strategies: Europe strives for strategic autonomy, the US tightens screening rules, and Asian markets navigate the balance between openness and security.

Policy changes have intensified scrutiny on foreign direct investment (FDI). Regulators in the US and EU are broadening their review scope, especially in sensitive sectors like defense, technology, and infrastructure. Meanwhile, the concept of “friendshoring” has gained traction, with capital increasingly redirected toward geopolitically aligned partners offering reliable supply chains and infrastructure.

• Expanded FDI screening in the US, with special focus on non-allied nations.
• EU initiatives to foster inward investment within member states.
• Tariff and non-tariff barriers rising across several strategic industries.

Sectoral patterns and strategic shifts

Amid these geopolitical shifts, investors are prioritizing quality assets and stable income streams. Industrial and logistics properties, residential living complexes, and select alternative sectors top many portfolios. Equally compelling is the surge in technology investments—particularly in data centers, semiconductors, and cybersecurity—reflecting a broader race to secure digital infrastructure.

The global energy transition further reshapes FDI patterns. While investment in renewables, green hydrogen, and electric vehicle supply chains is on the rise, cross-border flows into conventional renewable projects have moderated due to policy uncertainty and evolving carbon regulations. This dynamic compels investors to adopt long-term horizons and to partner with governments for stable policy frameworks.

Risks and adaptation strategies

As regulatory scrutiny and geopolitical volatility mount, investors must proactively manage risk. Transaction costs and delays have increased, while sectoral bifurcation leaves office markets lagging behind logistics and digital infrastructure. In this context, strategic adaptation is critical to unlocking value.

• Emphasize inflation-resistant, long-term asset classes such as infrastructure and digital networks.
• Diversify across regions and sectors less exposed to abrupt policy shifts.
• Allocate FDI risk carefully, integrating regulatory compliance into deal structures.

Practical measures include conducting rigorous geopolitical risk assessments, negotiating government-backed guarantees for large projects, and leveraging public-private partnerships to stabilize returns. Advanced digital tools, including AI-driven analytics and blockchain-based due diligence platforms, are also becoming indispensable for managing cross-border complexity.

Looking forward: moderate growth and policy divergence

Looking ahead to the remainder of 2025, moderate FDI growth is anticipated, driven primarily by M&A activity and improved financing conditions rather than greenfield expansions. Interest rate cuts in major economies may further unlock project finance, but gains will be uneven across regions and industries.

Policy divergence is likely to intensify fragmentation of global capital flows. Regional blocs and “friendshoring” alliances will benefit from preferential treatment, while non-aligned investors may face elevated barriers. Institutional investors are eyeing digital infrastructure and sustainability-focused assets, combining societal impact with inflation hedging.

Ultimately, the ability to adapt will distinguish successful investors from those caught off guard. By aligning portfolios with strategic autonomy goals, embracing robust risk management, and forging collaborative public-private partnerships, cross-border investment can continue to thrive—even amid the most daunting geopolitical headwinds.

In this era of rapid change, the most resilient investors will be those who perceive uncertainty not as a barrier, but as a catalyst for innovation and strategic transformation. The headwinds of today can become the tailwinds of tomorrow for those ready to adapt.