by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
XI JINPING MAY HAVE TO WAIT: China’s designs on Taiwan may be on hold for the foreseeable future in the wake of Russia’s stumbling invasion of Ukraine, according to intelligence sources we’re spoken with in recent days.
IN PUBLIC, XI HAS INDICATED SUPPORT for Vladimir Putin, but we’re hearing that in private there are growing differences. Some intelligence experts suspect Xi is urging the Russians to find a face-saving exit from Ukraine as the war becomes a public relations disaster for the world’s dictators.
BEIJING OBVIOUSLY WANTS TO EXPAND its reach in Southeast Asia in general and Taiwan in particular. The latter has a well-educated population and a thriving economy; Taiwan is the world’s leading producer of semiconductor chips.
DESPITE SABRE-RATTLING from Beijing, the likelihood of an invasion has slipped dramatically. The astonishing casualties inflicted on Russian troops sends a signal that invading Taiwan also could inflict huge losses; just as Russian tanks have become easy targets, an amphibious landing on Taiwan could be very costly.
AND AS RUSSIA HAS BEEN HIT WITH ENORMOUS global sanctions, China also would suffer a huge economic setback from inevitable sanctions if it attacked Taiwan. The mainland’s economy already has seen a growth slowdown; its population is contracting.
BEIJING’S LEADERS are famously patient, they focus on the long-term. And when it comes to trade and the economy, they have a pragmatic streak. So perhaps the issue of absorbing Taiwan could be on the front burner later this decade — but not now, not with the threat of bloodshed and massive global sanctions.
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IS A RUSSIAN DEFAULT IMMINENT? The London Telegraph is reporting that Russia may default on debt “within days.” Analysts fear the country will fail to make a $117 million coupon payment on a sovereign Eurobond next week. Moscow will have a 30-day grace period to pay up, but may be deemed to have defaulted if it attempts to pay in virtually worthless rubles, according to the Telegraph.
CREDIT RATING AGENCIES have Russian debt ratings at “junk” levels, as the country faces its first default since the revolution in 1917.
FOREIGN INVESTORS hold about half of Russia’s currency-linked bonds, leaving banks that bought debt from Moscow potentially exposed to multi-billion-dollar losses as a result. France is most at risk, with $4.5 billion of Russian government bonds held by the country’s lenders, the Telegraph reports.
RUSSIAN CORPORATE DEBT also will be at risk of default by spring, as the country’s economy sinks into a deep Depression. With thousands of battlefield casualties and a collapsing economy, the noose is tightening on the war criminal Putin, who is killing innocent civilians deliberately, not accidentally.
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This post was first published at the AGF Perspectives Blog.