While in no way is war with China inevitable, the risk that it contains has in no way been factored into the current prices of everything. Many asset prices are trying to reach ATH, with many succeeding, yet it is my belief that we may be heading towards a cataclysmic event.
The world has never seen a country rise to power quite like China. They went from being a backwards nation in every possible way to now challenging the Western world for supremacy. For many countries, they are their number 1 trade partner, and their economies rely on them for absolutely everything. However, beneath all of that they are forgetting one basic truth, China is a communist country and their leaders won’t hesitate to push forward with incredibly stupid behaviour in the name of maintaining power.
I imagine that all of us here are familiar with the odd little relationship that China and Taiwan have going right now. If war is going to break out, it will be between these two. The problem with communism is the need for constantly keeping the population content and under control, and little else does this as effectively as a nice little invasion. In recent months Taiwan has seen an unprecedented amount of intrusions of their airspace and threats by China. There have even been some Chinese ministers saying that armed conflict is inevitable, which is hopefully just bluster.
I believe that China is trying to ramp up the stress on Taiwan, just waiting for them to mistake a ‘peaceful’ flyby as an attack, so they can declare war and then whip up nationalistic fervor by claiming they are the attacked. I hope that those in Taiwan can keep a steady hand in the coming months.
The risk of this war would annihilate most markets quite like nothing we have seen. Perhaps their logic is that if war happens the stock market will be the least of their concerns so they will continue trading away like it isn’t going to happen. The market however has to account for the war only being between Taiwan and China, and this in itself would still decimate the markets.
Again, war with China isn’t a certainty, but the risk of it has to be taken into account, and I believe that it has not been considered by the world of finance. Perhaps Taleb was right, in this world of Extremistan, there are some profits to be made by people with either incredible foresight or courage, but likely both.