Gearing Up For War
How do investors hedge against the emerging conflict between China and Taiwan Last week Beijing launched its largest military exercises aimed at Taiwan since 1996. With tensions rising between China and America, the possibility of an escalation between China and Taiwan, be it in the form of a blockade or a full scale war, looms ever more plausible. There would be no escaping the economic and financial fallout that would follow. Thus investors should hedge their portfolios against such a possibility. Market’s reaction to Russia-Ukraine war To understand the market effects of a potential China-Taiwan conflict, I start by examining the market reactions to the Russia-Ukraine conflict. I will begin by examining the effects on the bond markets, then move onto equities and other asset classes, then finally onto balance of payment and currency issues. Bond Markets The credit default swap markets (CDS) for Russian and Ukrainian sovereign bonds have skyrocketed following the invasion. Curre...