Unilateral Action in South Asia

Unilateral Action in South Asia

In my 12/31/18 post here, I talked about the likelihood of three unexpected themes that could contribute to growing global event risk and falling public sector confidence. Two have taken center stage in the first two months of the year.

Unexpected Theme: Dramatic and Rapid Breakdown Of Post-WW2 Multilateral Structures

Yesterday, Heather Nauert withdrew her name from consideration for U.S. ambassador to the United Nations. With this decision, the impact of U.S. representation at the United Nations is once again in question. Reporting on this topic does not suggest that a long list of top-tier replacements are in line for this position. It is certainly possible that the instability of the Trump administration is the root cause, but it is also possible that our political elites continue down the path toward discrediting this institution.

Unexpected Theme: Rising Tension Between India-Pakistan

While we celebrated Valentines Day in the U.S., per Wikipedia, a convoy of vehicles carrying security personnel on the Jammu Srinagar National Highway in the Pulwama district, Jammu and Kashmir, India, was attacked by a vehicle-borne suicide bomber. The attack resulted in the death of 40 Indian Central Reserve Police Force personnel and the attacker. The responsibility for the attack was claimed by the Pakistan-based Islamist militant group Jaish-e-Mohammed.

The Indian government rapidly placed blame for the attack on the Pakistani government and responded with punitive actions. The Trump administration, in a statement, seemed to also place responsibility on the shoulders of the Pakistani government. In a region marked by great power competition between nuclear states including China, Russia, and the U.S., this is a situation that can fast get out of control.

The BBC reported that India has tried unsuccessfully to secure global sanctions against the group responsible for the attack and for its leader, Masood Azhar, to be listed as a terrorist by the UN security council. In a world where public opinion can turn on a dime with social media, Prime Minister Modi, who responded to his nearly 46 million followers on Twitter with a clear message of action, may see no alternative to unilateral military action. Any unilateral action further accelerates the growing irrelevance of multilateral bodies like the United Nations.

Financial Markets in an Event Risk World

U.S. equity markets have shrugged off global event risk. The S&P 500 has risen nearly 11% in 2019, the NASDAQ nearly 13%. At this juncture, the Federal Reserve may be revisiting its interest rate stance. With major indexes having risen to widely followed long-term moving averages, it may be a make or break moment for equities. If markets respond negatively to domestic or international political events, current price levels could be near-term highs. On the other hand, markets have shrugged off much of this bad news, and who is say they won’t keep powering higher. It is worth keeping track of FAANG stocks which have represented such a large portion of the market advance over the last several years. While major indexes are within single percentage digits of all-time highs, FAANG stocks remain well below their individual highs. A robust rally in FAANG may be the catalyst that ignores global event risk and powers the broader market higher to test or exceed all-time highs.

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Any opinions or forecasts contained herein reflect the personal and subjective judgments and assumptions of the author only. There can be no assurance that developments will transpire as forecasted and actual results will be different. The accuracy of data is not guaranteed but represents the author’s best judgment and can be derived from a variety of sources. The information is subject to change at any time without notice.