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Hedge Clippings | Friday, 25 February 2022 The old saying that "People behave the way they're allowed to" accurately describes Vladimir Putin at the current time. The Russian president/dictator has clearly (and correctly) judged that the likelihood of a military response from the West is nil, and presumably estimates that the political and economic cost of retaliation in the form of sanctions will be worthwhile compared to the benefits of returning Ukraine to the Russian fold. The West has stated it won't put troops on the ground so the military risks themselves seem slight, and to someone of Putin's mentality, are minimal and one-sided. It is down to the economic and strategic damage, with the problem that sanctions are likely to cost the West, and Europe in particular, dearly as well. Meanwhile, history tells us that the Russian people are much more resilient in the face of the economic and physical hardship they endure in everyday life than their "soft" democratic counterparts. Beyond the shorter term outcome of the invasion, the longer term question will be what happens when/if the Russian forces reach the western and northern borders of Ukraine? What, or where next? Meanwhile, President Xi will be watching with interest the rationale that historically Ukraine and many Ukrainians is/are Russian. That sounds much like China's claims on Taiwan, hence it is little wonder there's been no condemnation of the invasion from Beijing. Whilst the world's reaction to Xi following Putin's lead in Taiwan may be even more strident, actually going to war over an invasion is another question altogether. Which leaves sanctions. However, as above, sanctions have a habit of damaging both sides, and given the size and importance of the Chinese economy on the rest of the world, how far might those sanctions be taken, and how effective might they be? Would Australia cease to import Chinese made goods? And if we did, what tolerance would there be amongst a democratic population that would be forced to do without the everyday necessities they're used to? Even more important are our exports, where China represents 43% of our exports by value, slightly more than the combined exports of the next 15 countries on the list. Even if Australia were so indignant at any invasion of Taiwan, would we ban exports of iron ore and coal to China in retaliation, given the hue and cry over China's current ban on rock lobsters and red wine? The West has a problem that totalitarian regimes such as Russia and China don't have, notably open and fair democratic elections. Putin and Xi will behave the way they're allowed to, unless, or until their own populations decide otherwise. Which is unlikely to occur any time soon. News & Insights Intercontinental Exchange | Magellan Asset Management 10k Words - February Edition | Equitable Investors Investment Perspectives: House prices - what's in store for 2022 and beyond | Quay Global Investors |
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