“large scale military conflict”
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I was unable to make satisfactory trades during the so-called Corona Shock, and upon reflection, I realized that I hadn’t been adequately mentally prepared or anticipated actions for my investment activities, even in a rudimentary way.
There’s a question of whether one could have been prepared for the pandemic, but in my case, I had seen videos reporting the situation in Wuhan, China, before it spread to Europe and Japan. I remember there was about a week to make investment decisions before it became apparent that it was going to be a global pandemic and before stock prices began to plummet.
However, at that time, I vaguely thought that a pandemic of this scale causing a global halt in economic activities was unprecedented, and it was impossible to predict how far stock prices would fall.
In other words, I was in a state of mental paralysis, and more importantly, I should have been holding a selling position. It’s an embarrassing story.
From these reflections, I decided to anticipate as many situations as possible. This time, it’s about China’s aggression towards Taiwan.
About wars and conflicts
Regardless of the reason, I strongly feel that situations like war must be avoided at all costs. Engaging in such acts only breeds hatred, and this hatred then cascades down to future generations, trapping them in a loop.
As a parent raising children, I feel this even more strongly, and frankly, I don’t even want to think about war.
However, as of November 2023, my perception is that there has been an increase in news about “violence” on a global scale, not to mention the Russia-Ukraine war and the Middle East situation centered around Israel and Hamas.
I have this vague sense that something fundamentally changed during the years-long pandemonium of the COVID-19 pandemic.
One fundamental reason for the world becoming fraught, I believe, is the widening economic disparity worldwide and the resulting accumulation of people’s dissatisfaction. While exploring these factors is important, for those engaged in investment activities, the primary concern becomes speculating on investments in case of war or major conflicts.
Regardless of whether it’s good or bad, it’s a fact that investment is an activity with such aspects.
…As a side note, regarding COVID-19, it was good to experience a sensation I had never felt before in my over 40 years of life – the world uniting (even if imperfectly). It was more about “seriously tackling the same problem worldwide” than “uniting.” It was also intriguing to see the somewhat unilateral leadership behavior of the U.S., UK, and France, and the follower-like behavior of Germany, Italy, Japan, and other countries, which highlighted the global power balance.
Basics before searching for investment opportunities
According to the famous investor Warren Buffett, during major wars, the value of cash tends to decrease, so it’s better to hold assets in forms other than cash, such as stocks. He recommends stocks over assets like gold or Bitcoin, which are similar to cash.
And then there’s diversification. It’s a commonly heard advice, perhaps to the point of being cliché, but it applies during wartime as well. Diversify across countries, currencies, and sectors. For example, hold assets in U.S. dollars and euros, invest in U.S. and Japanese stocks, and spread across stocks, government bonds, and commodities.
Investment destinations vary depending on the parties involved
The Russian invasion of Ukraine led to an increase in the value of commodities like crude oil and wheat. This is because Russia is a resource-rich country. It’s an obvious outcome.
In the case of Israel-Hamas, there was a momentary concern about crude oil, but a sharp spike in oil prices did not occur because the main oil fields are not located in the affected area. However, if this conflict were to spread across the Middle East, it could be speculated that it would impact oil prices. Moreover, not just in terms of price, but if exporting becomes difficult, countries highly dependent on Middle Eastern oil, like Japan, are likely to be affected.
Thus, investment destinations can vary greatly depending on the countries involved in the war or conflict. It goes without saying.
Given this, I would like to speculate on what might happen if the ‘Chinese invasion of Taiwan’—often discussed in Japanese media—actually takes place.
The possibility of China invading Taiwan
First and foremost, I don’t want such a thing to happen, and when I think about whether it could really occur, I still can’t grasp a sense of reality. Many experts say it’s possible, but for an ordinary person like me, it’s hard to imagine.
However, as repetitive as it might be, ‘psychological preparation and action planning’ should be done for all conceivable possibilities, and the China-Taiwan case, in particular, should definitely be considered. It’s geographically, politically, and economically close to Japan, and it’s an essential issue for investors who hold even a small amount of Japanese yen or Japanese stocks.
Even if it feels unreal, it’s like a drill or an evacuation exercise that should be done just in case.
Potential investments in the event of a Chinese military invasion of Taiwan
In the actual event of such a conflict, there are numerous uncertainties, such as the extent to which decoupling from China, a major power, has progressed, the scale of China’s aggression, and the extent of America’s involvement. These elements are difficult to determine until the time comes, and as I am not an expert, I cannot delve into the details.
Therefore, I’ll make a very rough guess, with the attitude of ‘what usually happens when a conflict arises…’ and only consider what can be learned from past examples.
Likely timing
If a Taiwan invasion were to occur, it would probably happen while Xi Jinping is still in power. Considering his lifespan, the most probable period could be narrowed down; someone on YouTube made a convincing point about this. So, it seems likely that up to around 2033 could be a high-probability period (Xi is 70 years old as of 2023).
Defense industry
Regardless of moral judgments, if we think purely about the profits that are an investor’s mainstay, it makes sense to focus on companies involved in the war during wartime. The timing for investment would naturally be before the start of the war.
Famous defense companies include Lockheed Martin (LMT), Northrop Grumman (NOC), Raytheon Technologies (RTX), General Dynamics (GD), Boeing (BA) in the U.S., and in Japan, Mitsubishi Heavy Industries (7011), Kawasaki Heavy Industries (7012), IHI (7013).
However, I feel that many people might find it ethically challenging to invest in the defense industry.
War-driven economic boom
The Korean War era in Japan serves as a good example, suggesting that countries near a warzone often profit. It’s quite likely that with an increase in people (such as soldiers) in a country, there will be a physical boost in sales and economic activity.
In the case of a China-Taiwan conflict, it could mean that the economies of neighboring countries like Japan and South Korea might benefit. However, there’s a concern that Okinawa is too close to the potential battleground, raising the possibility of being directly affected. Of course, this is merely a geographical perspective; I understand the political differences between Taiwan, sometimes referred to as ‘Chinese Taipei’, and Japan, which is tied to the U.S. through the Japan-U.S. Security Treaty.
But given that recently a series of unexpected events have actually occurred, it’s hard to say there’s no concern at all.
While pondering this, I came across a statement by Jim Rogers.
Investing in war-torn regions
According to Jim Rogers, “From years of experience, I have learned that investing in regions during war can be highly profitable.” (Reference: https://president.jp/articles/-/68950?page=1 *Article in Japanese)
Currently, with the ongoing Russia-Ukraine war, he wants to invest in Russia. However, it seems there aren’t many methods to do this from the West.
This implies contrarian investing, suggesting that after an area has been ‘burned to the ground’, the only way left is reconstruction and growth.
Investment destinations: Japan and South Korea
Whether it’s due to the economic boom as neighboring countries or getting directly involved as a party to the conflict, my assumption is to invest in Japan in the event of an actual China-Taiwan conflict.
Similarly, South Korea has defense companies like Hanwha and Hyundai, and depending on the situation, it could become a better investment destination than Japan. (Hanwha related article: https://cigs.canon/article/20221220_7181.html *Article in Japanese)
In any case, I feel that the timing for this investment (if it really happens) could come suddenly one day. It’s truly something I don’t even want to think about.
