Daily Archives: August 17, 2012

Assessing political risk in the South China Sea

There’s a lot more to the South China Sea engagement, but of the few people even acknowledging the escalating situation there, Brown Brothers Harriman is the only one looking at this through a market-oriented lens. This is what strategist Ilan Solot had to say in a recent research note:

Tensions in the South China Seas are rising again between China, Japan, Korea, the Philippines and several other Asian countries. This is a longstanding territorial disputes compounded by the desire to secure oil and natural gas resources. The region is also an important shipping rote. There have been a few developments this week that suggest an intensification of the tensions going forward.

We can foresee three possible consequences for markets: (1) The conflict could spill over into trade restrictions; (2) It could threaten the web of bilateral and multilateral swap agreements (Chiang Mai) which give smaller Asian countries protection during funding squeezes; and (3) It could reduce the cooperation in the region. All of these risks are still unlikely to materialize in the short term, in our view, but the chances are increasing.
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Daily Headlines off and other activity to be slower until August 27

I’m on a project in a place where internet connectivity is unpredictable, so there will be no daily headlines and I’ll otherwise post what I can. Regular schedule to resume on Monday, August 27.