Jovi Ho Thu, Jun 09, 2022 • 5:14 PM
Indosuez Wealth Management’s Arjan De Boer recounts how as a 20-year-old three decades ago, he was swimming along the French Atlantic coast, which was churning with riptides.
“Waves were extremely high. There was a strong undercurrent sucking me underwater and I had real difficulty getting back to the beach. So, I thought: ‘Okay, this is it; I’m not able to return,’” recalls De Boer, Indosuez’s head of markets, investments and structuring.
“But at that little sink-or-swim moment, I was fighting my natural instinct and instead, forced myself to relax and kind of flow with the tide, which eventually brought me back to the beach,” he continues.
Similarly, the world was hoping that the summer of 2022 would be uneventful and that “we would be able to enjoy a holiday by the beach”, says De Boer.
Unfortunately, that was not the case. “Global events have made sure that the gentle waves we wanted are anything but calm.”
De Boer likens the global economy today to the ocean he encountered 30 years ago. “It has experienced massive waves and undercurrents from the war in Ukraine, rising inflation, several international elections, power transition, as well as China’s very strict zero-Covid-19 policy.”
The war in Ukraine has intensified the massive supply shock that the world was already reeling from. “Commodities, importers and manufacturers are scrambling to find alternative sources of energy, metals and agricultural products,” he adds.
The war has also added further strain to energy markets as Russia supplies 14% of the world’s oil and is the world’s second-largest natural gas supplier, behind the US.
In the US, the Federal Reserve is hiking interest rates to combat rising inflation.
Davis Hall, head of Asia capital markets at Indosuez, foresees five more hikes this year totalling 200bps, reaching a mid-2023 peak of 3.4%.
“A moment of truth in the next 60 days is probably when we transition psychologically from talking about the rate hikes that are priced in, and start worrying about what’s going to happen tomorrow,” says Hall at Indosuez’s outlook call on May 12.
De Boer concludes: “So, with surging waves from high energy prices, rising food insecurity and disrupted supply chains, investors must fight the natural urge to panic. Instead, we must try and remain calm. Let the waves bring us back to safety eventually.”
China will win a war: Goh Chok Tong
Waves in the investment markets may be upsetting but geopolitical tensions are churning more violently overseas. The US involvement in Taiwan is a “negative-sum game”, and should a proxy war break out between the US and China in the South China Sea, China’s military will win, says emeritus senior minister Goh Chok Tong.
Speaking at UOB’s Private Bank 2H2022 Investment Forum on June 3, Goh pointed to an asymmetrical scenario arising should the US support Taiwan in a “hot” war against China. “I look at the way the US is preparing to deepen its ties with Taiwan; I feel there will be no good outcome,” says Goh. “No good will come out of this; that is my worry.”
He points out that while China’s military expenditure is only one-third that of the US, strength on paper is not the same as real strength.
“Where the South China Sea and Taiwan are concerned, those who have analysed it say China has an asymmetrical defence and, therefore, offence,” says Goh.
However, should a war extend beyond the Asian theatre, the US would emerge victorious, Goh adds. “The US has 5,500 nuclear weapons. China has 300. Who would win?”
Goh also answered questions about the impetus for a potential war. Already, the Russian invasion of Ukraine has coloured the Americans’ view of China as the US become increasingly suspicious of China, he says.
“China has said its ties with Russia are ‘without limits’ and it does not condemn the invasion. The US has warned China not to invade Taiwan. It has moved to strengthen its relationship with Taiwan and war over Taiwan cannot be ruled out.”
On May 23, President Joe Biden, in response to a question, said that the US would intervene militarily if China attempts to take Taiwan by force. This warning appeared to deviate from the deliberate ambiguity traditionally held by the US.
The comments were slammed by China. “China can say: ‘I am prepared to fight because Taiwan is a part of China.’ It is a very complex situation,” says Goh.
“My hope is that there should be no war. I hope China will be very patient … I hope China grows its economy.”
The genie is out of the bottle
In a prepared speech, Goh reminisced about his time as prime minister of Singapore between 1990 and 2004.
With the Cold War just ended, the world was globalising. Asean Plus Three [which began in 1997] included China, Japan and South Korea; China became a member of the World Trade Organization in 2001 and the US extended a hand of friendship to China.
“That may have been the golden period of geopolitics,” he adds.
Today, Goh says he is “pessimistic about the future of the world”, which is a perspective he has held even before the invasion of Ukraine.
From his view, the world has become more unstable, more dangerous, and more polarised with the US clearly not ceding its dominant role to China.
“It sees the rise of China as a long-term strategic threat,” says Goh.
Back in March 2021, US Secretary of State Antony Blinken said: “Our relationship with China will be competitive when it should be, collaborative when it can be and adversarial when it must be.”
“But China is not going to roll over,” says Goh. “The genie is already out of the bottle.”
Even if there is no global hot war, there will be an estranged relationship between both sides, says Goh. “At best, a bipolar world. At worst, there will be a world of bipolar disorder: sometimes sane, sometimes insane. A world [where countries are] forced to take sides.
“Instead of building more bridges, I’m afraid more walls will be built. This is the world Lawrence Wong and the 4G team will inherit.”