What About China? Plus, a Russian Default Looms

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.
* * * * *
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.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

©2022 AGF Management Limited. All rights reserved.

This post was first published at the AGF Perspectives Blog.

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