GEOPOLITICAL TENSIONS – ON AN INCREASE

By Ruma Dubey

The Indian markets fell on Monday by 190 points despite the good news on the Cabinet reshuffle. There was really no reason within India for the markets to topple, yet fall it did.

We were so busy looking inside, stuck without head into the earth like the ostrich that we missed the happenings outside. Once again geopolitical tensions swayed the mood and this time, blame it on North Korea, the errant chimpanzee with one hand always on the nuclear missile. It conducted its sixth and reportedly one of the most powerful nuclear tests on Sunday. This sent global tremors and such tests always raise the fear that the regions stability would get affected. North Korea, in all probability, enthused by its sixth test might test some more and South Korea wants to be prepared – it is talking to the United States about deploying aircraft carriers and strategic bombers to the Korean peninsula.  

Those of us who have been in the markets for a couple of decades know that these are the usual and over-the years-same kind of geopolitical tension which affects the global markets. So based on our experience and drawing from memory and reads, a quick look at some of the geopolitical tensions over the last few years.

The major ones have obviously been the World Wars, attack of Pearl Harbor, then the Gulf War, 9/11, Iraq invasion, Russian annexing Crimea, US bombing Libya, Kuwait Invasion, Madrid and London bombings, Ukarine conflict, Paris terror attack.

The fear of war is the common thread over 100 years – that is essentially what geopolitical tension is all about – the fear that any liquid situation could erupt into a full blown war. Over the years, from war, the crisis is now about terror attacks as again the fear is that a terror attack, like 9/11 could lead to invasion an war.

Indeed if you track the past geopolitical tensions, based on experience we all know the consequences of the event but the one percent of uncertainty is what causes the stress.

It is our fallacy to assume that tensions happen at random and the fight is between two ideologies. Look at things pragmatically, it becomes apparent that these tensions have little or nothing to do with ideological differences between governments and financial oligarchs. The target is always the psychology of the people – it would be no exaggeration to say that many of these conflicts are engineered. Look back in history - monarchies and oligarchies are historically notorious for fabricating diplomatic tensions and conflicts in order to force populations back under their control. Why go so far – the Iraq invasion did precisely this helping Bush win again.

According to a survey by the CFA Institute, more than two-thirds of global investment professionals expect the geopolitical climate to affect investment returns over the next three to five years. 70% of respondents expect these changes to negatively affect market performance. 

Thus increased conflicts and geopolitical tensions is what this new world of ours will have to constantly deal with. There is no given set of rules and road map to follow and taking fiscal decisions at these times could be a hit or miss. Thus one cannot predict a conflict just as one cannot predict how the markets could react to the conflicts…