(Released Today) Divorcing the Tiger: What the Australia-China Split Means for Your Investments
Is your immediate investment future ‘chewing gum stuck to the bottom of China’s shoe’?
That was how Chinese propagandist Hu Xijin, editor of the Chinese Communist Party-owned Global Times, charmingly described Australia last year.
Since then, as you know, Australia-China relations have gone from bad to dire.
Beijing has slapped bans on more than $20 billion of Aussie exports to China, including coal, beef, barley, seafood, and wine.
It’s yet to take the same action with our biggest export, iron ore.
But Australia, as you’ve also seen recently, has fought back.
The AUKUS agreement with the United Kingdom and US has taken things to a new and potentially dangerous level.
What are the ramifications of all this for your investments going into 2022?
I’ve attempted to answer this question in a research report which I’m releasing to The Daily Reckoning today.
I believe our break from China will be
the central Australian investment trend
of the next two decades
Just like our cosy marriage defined the last two decades.
If you get ahead of the pack on this, and make a few adept changes to your portfolio, you can first of all protect your investments from the fallout. And second, you could stand to make a lot of money over the next few years.
This is a situation that is moving very rapidly.
Which is why I think it’s really important you learn as much as you can about the investment implications now.
As The Sydney Morning Herald reported this week:
‘Former Australian prime minister Tony Abbott touched on Beijing’s ultimate pressure point with his visit to Taiwan on the weekend.
‘Once an enthusiast for Australia’s China relationship, Abbott said “the scales have fallen from our eyes” in the past few years. While he emphasised he was speaking “to the Australian government” and not “for the Australian government”, he pledged to encourage Australia to deepen its engagement with Taiwan:
‘“I don’t think Australia should be indifferent to the fate of a fellow democracy of almost 25 million people.” Opinion in the Australian government was already moving in that direction. Abbott wants to hasten it.’
These kinds of escalations are occurring almost daily now.
But they really ramped up with the emergence of the pandemic.
China is being scrutinised from every direction right now. And the pressure is building…
There are two immediate issues here you’ll have heard a lot about recently.
First, the worsening China situation on a geopolitical level.
Second, what’s going on inside the Chinese economy. Specifically, its property sector. Property developer Evergrande, with US$302 billion in liabilities, seems to be the canary in the coalmine there.
Let’s tackle trade and geopolitics first.
In September 2021, Australia signed a defence pact with the US and UK. The Australian reported at the time:
‘The agreement will deliver a fleet of eight nuclear-powered submarines, following the dumping of the $90bn French contract for 12 conventionally powered vessels, with Australia the only country other than the UK to be given access to the highly guarded US nuclear technology.
‘The agreement will provide access to electronic warfare technology capable of knocking out power grids, key electronic systems such as banking and crippling vessels before they leave port. It will also fast-track access to missile technology such as Tomahawk cruise missiles.’
China obviously wasn’t happy with the announcement. A spokesman said:
‘The most urgent task now is for Australia to face up to the reasons for the frustration of the relationship between the two countries and think carefully about whether to treat China as a partner or a threat.’
Based on the nuclear subs deal, Australia clearly sees China as a threat.
Which is a problem when it’s also your largest trading partner.
But what else are we meant to do?
The Chinese are burning bridges everywhere you look.
As the Lowy Institute stated on 11 August before the subs deal angered China even more:
‘In the past year alone both countries have lodged complaints against the other with the World Trade Organisation and a freeze on high-level diplomatic relations remains in place.
‘China has slapped tariffs on key Australian exports, while the chattering classes have unhelpfully stoked fear of a regional war.’
Beijing has been interfering in our domestic politics here through funding scandals…and stoking pro-China demonstrations on Australian campuses.
We banned Chinese tech giant Huawei from taking part in our 5G rollout.
We cancelled two deals that the state of Victoria struck with China as part of its flagship Belt and Road Initiative.
And the Aussie government is seeking security advice over the port of Darwin which has been leased to the Chinese-owned company, Landbridge. A possible outcome is the company being forced to divest on national security grounds.
And in the background…
Australia has led the world in demanding an open investigation into the virus outbreak.
When your biggest trading partner outright threatens a ‘huge impact’ to the Australian economy if we don’t shut up…you know something has fundamentally changed.
This is messy.
And it’s about to get messier…
To get the full story…and to find out how it affects you on a portfolio level…I urge you to read ‘Divorcing the Tiger’ now by clicking here.
Head of Research
Fat Tail Investment Research
PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.