Asia

Commodity volatility will continue its rising trend since 2014. The US is on the brink of a major election, the outcome of which could reduce its willingness to engage with the outside world. So, states seeking to carve out their own spheres of influence are incentivized to raise the economic costs to the US and discourage its influence in their regions. These states can do this by interfering in key trading routes in their regions. As a result, geopolitical threats to maritime chokepoints are a structural as well as cyclical problem and will persist due to the revival of superpower competition.

Middle East conflict, extreme US policy uncertainty, Chinese economic slowdown, US-Russian proxy war, and Asian military conflicts do not create a stable investment backdrop for 2024. Our top five “black swan” risks may be highly improbable, but they stem from these underlying trends.

There is no easy way for China to forestall deflation. Provided policymakers are still reluctant to unleash large-size stimulus, more economic disappointments are likely in the coming months, and Chinese stocks will continue to sell off. The yuan is at risk of further depreciation versus the US dollar.

Taiwan’s election will lead to serious Chinese military and economic pressure but not full-scale war. War is a long-term concern. Investors should short TWD-USD.