How is India, China, AUKUS, Quad related to your Financial Freedom?
Finn, Nancy and Meme were at the amusement park, standing in a long queue for the most famous ride – one of the biggest roller coaster rides in the world. While waiting in line, the conversation turned to world politics.
Nancy: “Did you hear about what has been happening at the United Nations this week?”
Finn: “Yeah, it looks like the deal between Australia, United Kingdom and the US – the AUKUS – is receiving a lot of spotlight.”
Meme: “They are erstwhile World War allies coming back together for a security pact, this time against China.”
Nancy: “I agree they are free to get back into a new security deal, but it looks like they’ve alienated France though.”
Meme: “Yes, France was allegedly kept in the dark about the AUKUS deal and they are not happy to lose the contract for the multi-billion dollar nuclear-powered submarines.”
Finn: “That does seem like negotiating in bad faith between friends though.”
Meme: “Perhaps, but today’s international geo-politics is very much focused on China’s growing hegemony, especially in the Indo-Pacific. The trade war between Australia and China has intensified in recent years. Changing geo-political equations require new deals and pacts. It is inevitable.”
Nancy: “Is India likely to benefit economically from this post-covid, anti-China sentiments worldwide?”
Meme: “Maybe. There are discussions about diversifying Global Supply Chains and increasing local Manufacturing in India, with the Indian Government offering tax incentives.”
Nancy: “So there is a good chance that Indian equities can give very good returns in the next decade or two if the economy grows because of such new opportunities, right?”
Meme: “Possibly, yes.”
By then the three friends had reached the end of the queue and were getting ready to sit on the roller coaster seats.
Finn: “There is also the Quad, which seems to another alliance directed against China.”
Nancy: “Yes, that includes the US, Australia, Japan and India, doesn’t it?”
Meme: “True, but they have made it clear that the Quad is not a military-security alliance unlike the AUKUS.”
Nancy: “So if there is a border dispute between China and India that escalates, the Quad allies won’t support India?”
Meme: “They are not bound by any security pact to side with India, although they might just issue a condemnation statement.”
Finn: “Do you think we’ll see an India-China War in our lifetime?”
Meme: “I doubt we’ll see a conventional war anymore, given both countries are nuclear-armed. But there are always other types of technologically advanced warfare.”
Nancy: “Do you mean like Iron-man stuff, like in the Marvel movies?”
Meme: “Haha yes, possibly. We already have robotic dogs and dancing robots. Not a leap to imagine robot soldiers. But I was thinking more like drones and anti-satellite missiles which can weaken nations even without actual bloodshed.”
Finn: “But if there’s a war, then Indian equities may crash and take years to recover isn’t it?
Meme: “Possibly, yes. The fear of a conflict could send the market tumbling down. How long it takes to recover may depend on how much of the economy is affected.”
The usher directed them towards a seat and the three of them got in and fastened their seat belts.
Nancy: “You are saying ‘possibly’ quite a lot today, aren’t you?”
Meme: “Haha, yes, because all we can do about these topics is speculate. There is no point worrying about your investments by speculating on wars or economic progress. We can never know for sure. There will always be potential for huge economic development in the foreground with a risk of war or a viral pandemic or a financial crisis in the background threatening everything. In the long term, there could be cycles of growth, followed by years of slowdown, caused by conflicts or other global risks, and followed again by huge growth spurred in the aftermath of war. No one can predict these things. Risks and volatility is inherent in equity investments. One should not get on the ride without expecting them.”
Finn: “So what are you saying really? The markets have gone up so quickly in the last few months. Are you expecting a crash?”
Meme: “All I’m saying is, the ups and downs are inevitable and are part of the ride. The only thing you can do is, buckle-up and enjoy the journey!”
Coincidentally, the roller-coaster ride started to chug along slowly and the conversation was paused for the time being as the three friends held their hand tightly in anticipation of both fear and excitement. The next moment, there was only loud shrieks in high decibels, which reached a crescendo from everyone on the ride, as they descended together towards their inescapable destination.
Once they reached ground level again, they all sighed a sign of relief.
Nancy: “Boy that was a fun ride, wasn’t it?”
Finn: “Yeah, it wasn’t as bad as I had feared!”
Meme: “Getting back to our analogy, it is also important to know when to get off the ride. The focus should be to reach your target corpus for your financial goals through proper asset allocation and simple portfolio management, without having to worry about the ups and downs of the market, and once you are closer to your goal, you should not be taking needless risks with your money anymore.”
Finn: “That makes complete sense.”
Nancy: “Which brings us to an important question. Which ride are we going on next?”