The One Conflict Markets Can’t Ignore: India vs China

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As the US and many of its Western allies continue to endure protests, stock markets have been largely apathetic.

The societal upheaval and revolt has been largely shrugged off by Wall Street. A sign that perhaps the financial world sees little impact from the outrage.

Whether that’s a good or a bad thing, only time will tell.

I get it though.

Protests and riots aren’t exactly a new thing for the US. Especially when it comes to the highly divisive arena of race relations.

The civil rights movement wasn’t the end of this issue, it was just the beginning. A long and troubled road that has brought us to where we are today.

I’m not going to dwell on or get into the nitty-gritty of this fight though.

I’ve no doubt you have your opinion, just like everyone else. At the end of the day though, it is up to the American people to decide their future.

And while they do that, markets will likely chug along as an observer rather than a participant. It is a social issue, not an economic one.

However, despite all the attention these protests are getting, it is not the only conflict happening right now.

What should be concerning markets is what’s happening between India and China. Because as of last night, these two rising superpowers are getting closer to a direct war…

First bloodshed in decades

If you’re unaware, India and China have been fighting over disputed land for decades.

A small border site in the Himalayas has served as an inflection point for both sides. Territory that both countries have laid claim to and fought over since 1962.

Since 1975, the standoff has purely been a war of words. With no actual fighting resulting in loss of life.

That is, until today…

Early reports are saying 20 Indian soldiers were killed in an overnight skirmish. With unconfirmed information suggesting that China also suffered casualties.

Either way, it’s a serious escalation in a standoff that has been heating up in recent weeks.

Keep in mind, this is a region that is renowned for its conflict. India and Pakistan have been at each other’s throats for decades around this Kashmir Valley.

But this fight with China is far fresher and far more troubling.

As The Guardian reports:

Tensions between the two sides had been escalating since late April, after China’s encroachment of thousands of troops into disputed territory along the Line of Actual Control (LAC), who set up camps and brought over artillery and vehicles and caught India off-guard.

The silver lining, as morbid as it may be, is that no shots have apparently been fired. Any and all fighting was reduced to a physical ‘brawl’ between both sides.

For this reason, there isn’t a great deal of concern of this blowing up into an all-out war. It is (hopefully) just a case of strong-arming getting out of hand.

That should mean any further loss of life is unlikely. It seems as though both sides wish to avoid that.

But the underlying tension isn’t going to disappear anytime soon.

For markets, that is something that could have much broader ramifications. And not necessarily in the way you might think it would.

A rising India

We’ve all heard about the ‘forthcoming’ emergence of India.

They have long been touted as the next big developing nation to rise to the global stage. But it hasn’t been quite as grandiose or domineering as China’s ascent has been.

In fact, India only accounted for 4% of global GDP last year. A far cry from the dominance of the US and China — sitting at roughly 25% and 17% respectively.

Over the coming decades though, this is expected to change dramatically.

One think tank expects China to account for a 20% of GDP by 2060. Expanding modestly on the back of a framework that is tried and true at this point.

The big winner though, could be India. With this forecast estimating that their total GDP share could spike to 16% in the same time frame. Bringing it closely in line with where China is at today.

Suffice to say, that will be a major development for the world economy. Albeit in 40 years…

However, as this pandemic has shown, the world is changing faster than ever.

COVID-19 has arguably been the single greatest threat to China’s manufacturing supremacy, ever. Coming at a time when the US was already pushing back against the Middle Kingdom.

Even in Australia we’re starting to see local industry realise the need to diversify beyond China. That doesn’t mean we will sever our ties completely, just that we will broaden our trading relations.

For India, this is an opportunity to assert itself. Take this snippet from Bloomberg last week:

Since March, India has stepped up participation in the U.S.-led Indo-Pacific group of nations, which includes Japan, Australia, New Zealand, Korea and Vietnam, with weekly calls to discuss issues such as pandemic preparations and “vital supply chains.” Modi and his Australian counterpart, Scott Morrison, upgraded their bilateral ties and signed a defense agreement on Thursday.

Not to mention the far more direct approach they’re taking when it comes to the US. As the article continues:

As the Trump administration rounded on Beijing for its initial handling of the epidemic, the government in New Delhi made a bid to lure U.S. businesses to relocate to India from China, reaching out to more than 1,000 companies from medical equipment suppliers to auto part makers offering incentives to decamp.

No doubt that is going to piss off China. And while it certainly wasn’t the reason for this latest border stoush, it is a part of the larger conflict.

I’d be keeping a close eye on where this is all headed. Because we just might be about to see India take the limelight for real.

For investors and markets, that is a development you can’t ignore.


Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also the Analyst of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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