Conflict fears bring down global stocks

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The Asian Stock Exchanges closed in a general decline this Tuesday (2), a movement that extended to markets in other regions, such as the United States and Europe, with the dawn of the day in the West.

The reason for the bad the mood of the markets is the worsening of tensions between the United States and China in the face of the possible visit of Nancy PelosiSpeaker of the US House of Representatives, to Taiwan, an independent territory that is considered a rebel province by China.

In 1949, when he was defeated by the communist army of Hand Tse-tung in the conflict that went down in history as the Chinese Civil War, the then Chinese leader Chiang Kai-Shek fled to the island of Taiwan, and established an autonomous government there, independent of the Chinese Communist Party.

This means that China as we know it today never ruled Taiwan, but still claims control over the island, which today has around 23 million inhabitants.

This situation tense has been going on for decades, and China maintains a policy of denying the sovereignty and autonomy of the region, which has its own democratic government and a political system completely independent of the “socialism with Chinese characteristics” implemented in the neighboring nation.

Because of this stance adopted by the Chinese government, the visit of an authority of the importance of Pelosi Taiwan is seen internally as an affront and a threat to Chinese sovereignty.

In addition, it is worth mentioning that Pelosi has a long history of criticizing the Chinese dictatorial regime, having even spoken out in favor of the protests in Hong Kong and having herself protested in 1991 against the massacre of students and demonstrators that took place in Tiananmen Square in Beijing in 1989.

Last week, Chinese President Xi Jinping told US leader Joe Biden that Chinese troops would not be “watching idly by” Pelosi’s visit to Taiwan in an attempt to curb the visit.

There are reports of Chinese troops being deployed in regions close to the island, but the government claims it is just a military exercise. It is worth remembering, however, that this was the term used by Vladimir Putin to refer to the mobilization of his troops on the border with Ukraine shortly before the invasion of the country. Since then, experts have been warning of the possibility of a Chinese invasion of Taiwan.

It is important to highlight the crucial role of Taiwanese industry in global production chains, as the country is a global leader in the supply of semiconductor chips, key components in the production of all types of electronic products, from smartphones to automobiles.

This means that a conflict in Taiwan could further aggravate the already delicate situation of the global industry, drastically reducing the supply of a series of products that are already in short supply, putting even more pressure on inflation around the world.

To get a sense of the impact of these components, the shortage of semiconductors was the main reason for the decrease in automobile production across the planet during the resumption of global economic activity, resulting in explosive increases in the prices of cars, motorcycles and others.

In this scenario of geopolitical tension between the two greatest powers on the planet, investors are less likely to take risks, and markets operate mostly in decline.

Read on ‘Investigando o Mercado’ (exclusively for UOL subscribers, who have full access to UOL Investimentos content): information on the second quarter results of Raia Drogasil, the largest retail chain in the pharmaceutical segment in Brazil.

A hug,

Rafael Bevilacqua
Levante’s Chief Strategist and Founding Partner

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