Andy Xie

The View | Markets ignore risks of conflict over Ukraine and Taiwan at their peril

Financial markets seem in denial as China and Russia seek to roll back US dominance and reassert their own sphere of influence

Any military confrontation would be a shock to the global economy. In particular, war over Taiwan could have devastating repercussions on US corporate profits and the unique role of the dollar

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Taiwan Armed Forces soldiers crew a CM-11 Brave Tiger battle tank during a military combat live-fire exercise in Hsinchu, Taiwan, on December 21. Taiwan has always been viewed as unfinished business and an issue of great importance for Beijing. Photo: Bloomberg

Andy Xie

Published: 1:30am, 24 Dec 2021

China and Russia are united in their goal to achieve a sphere of influence in areas surrounding their borders. Moscow wants to rewind the clock to 1997, while Beijing has unfinished business left over from 1949 on Taiwan. The US is saying, “Not so fast”.

This scenario could lead to military conflict, with an impact on global inflation, economic growth and corporate profitability. Financial markets ignore the risk at their peril.

This year is a turning point in so many ways. First, hope that vaccines could end the Covid-19 pandemic is turning to despair. It now feels like yet another variant is just around the corner. Second, inflation is back, signalling the end of printing money with no inflation worries for the past two decades.

And third, perhaps most important of all, China and Russia are reasserting their global power status to challenge US dominance of their surrounding areas. The US won’t concede anything so it appears that Beijing and Moscow may have to fight for what they want.

While Nato, EU and US politicians have been talking feverishly about the possibility of Russia invading Ukraine in weeks, financial markets are not paying any attention. If a conflict does break out, the current energy crisis will seem like nothing in comparison.