“I’m going to start my presentation by saying what any self-respecting consultants say all the time — we got it wrong,” said Andrew Bishop, senior partner and global head of policy research at Signum Global Advisors, during a session at the Canadian Investment Review‘s 2022 Defined Benefit Investment Forum. “I’m referring to China’s easing of its zero-COVID policy. It’s being undone at an unprecedented pace.”
Until the beginning of the rollback of the highly controversial policy, he said he expected it would be in place until after the winter. “All modelling shows that there will be between 500,000 and two million deaths in China in the next six months. . . . That begs the question, what’s going on?”
Bishop isn’t convinced by the theory circulating in the popular press — that the loosened policy comes in response to China’s economic crumbling. “That doesn’t add up. Its economy was in trouble three months ago and it was in trouble six months ago and a year ago. Why wouldn’t they have opened up back then?
“I think the government saw an opportunity in the protests,” he added. “It gave them a reason to reopen and it could justify the chaos ahead. Now they have this window to reopen. I think they’ll go full steam ahead. China’s going to have a good year next year.”
Bishop also said he’s more inclined to believe the popular explanation of China’s strategy for reclaiming Taiwan — that it’s unlikely to attempt a takeover in the near future because its economy isn’t healthy enough to deal with the inevitable resulting sanctions. “The problem is the pesky United States. . . . [On Dec. 7, 2022] it announced a $10 billion package to help fund Taiwan’s military.
“There’s also a push from hawks to end the policy of strategic ambiguity. They want the U.S. to make it clear that, if China does attempt an invasion, it will intervene militarily to defend Taiwan, . . . essentially starting World War III.”
This, he argued, has led Chinese officials to start considering pushing up the timetable of a possible invasion, blockade or mainland-backed coup perpetrated by fifth columnists inside Taiwan. “The clock is ticking for Beijing. . . . There’s a parallel to be drawn with the situation in Ukraine. Vladimir Putin never said, ‘This will be easy.’ He said, ‘This will be easier now than in five years.’”
When it comes to Ukraine, Bishop said he isn’t convinced Russia is out of the fight. He also noted the fallout of the conflict is likely to be a larger source of risk to portfolios than most institutional investors expect in the next few years. “I think there’s a false sense of confidence as a result of Russian incompetence.
“No one is satisfied with the status quo, so a peace deal is off the table — at least for the next four years. I think we’re in for another seven to 10 years of war.”
Two of the four scenarios that could lead to an end to the conflict strain credibility, he said. One, the possibility of a Russian coup leading to a new president willing to come to terms with Ukraine, fails to account for Russia’s long history of deposing leaders who project weakness. Another, in which Russian forces succeed using conventional tactics, overlooks the persistent incompetence of Russia’s military.
“Realistically, there’s only two ways this comes to an end. The first scenario is also the most likely: Ukraine routes the Russians militarily. The problem is the moment it looks like they will retake the Donbas, Putin will use nuclear weapons.”
The final option would be for Ukraine to be drawn to the negotiating table after Russian forces inflict staggering losses on its people, said Bishop. “For all the horrors Russia has conducted in this war, it hasn’t gone there yet. The reason for this is the same one that’s kept Putin from using nukes. He doesn’t feel backed into a corner yet. But Ukraine is proving itself the stronger military force — if things keep going as they have been, it stands to reason he will find himself in that corner.”