Moneycontrol Pro Weekender: War and Peace

During his visit, US President Joe Biden spent more than five hours in the Ukrainian capital, consulting with Zelenskyy on next steps, honoring the country’s fallen soldiers and seeing U.S. embassy staff in the besieged country. (AP Photo/ Evan Vucci)

Dear Reader,

There has been a spate of articles marking the anniversary of the Russian invasion of Ukraine. For good reason—the invasion could turn out to be a turning point both for global politics and the world economy.

Geopolitics is a term we’ve all become familiar with in the last one year. There’s talk of a new Cold War, with Russia and China on one side and the US and its friends on the other. The deep divisions are clearly visible in the G20 meet in Bengaluru, where on the one hand Janet Yellen has called for fresh sanctions on Russia, while on the other a Bloomberg report says India doesn’t even want to call the war in Ukraine a war. The United Nations, as usual, is conspicuous by its absence.

The US and its allies put the entire blame for the war on Russia, as this FT article, free to read for Moneycontrol Pro subscribers, says. Russia’s friends point to the extension of NATO eastward and the Ukraine regime’s attack on the Russian-speaking east of the country. They say it is actually a war between Russia and NATO, with Ukraine being used as a mere pawn.  Our columnist has pointed to the fact that big powers, such as Russia, want a sphere of influence where they should not be challenged, much as John F Kennedy objected to missiles being stationed in Cuba by the Soviets. The middle path is articulated by Senior Colonel (Retd) Zhou Bo of the Peoples Liberation Army, who said in this video that he understood why Putin went to war, which doesn’t mean that Putin is right.

Many commentators have said the situation in Europe resembles that in 1914, when the First World War began. The enormous difference is that we now have nuclear weapons. The Bulletin of Atomic Scientists who set the Doomsday Clock, a measure of threats to humanity, has moved the clock to 90 seconds to midnight -- midnight signifying the Apocalypse. The Bulletin says it is “the closest to global catastrophe it has ever been”.

The global economy too has changed dramatically since the invasion. Sure, the globalisation paradigm of the nineties and the noughties had already been dealt body blows by the pandemic and the US economic war against China. But the invasion of Ukraine marked an inflection point.

It isn’t just the short-term disruption of supply chains and the rise in inflation that’s important, although these too have wreaked havoc on poorer countries, and we are seeing that in our own neighbourhood, with Sri Lanka, Bangladesh and Pakistan all reeling under the impact. What is far more significant is the long-term damage to the global economy.

The West says the sanctions against Russia and the freezing of its assets are punishment for its invasion of Ukraine. Others cast a sceptical eye on that claim, pointing to the invasion of Iraq under the completely spurious claim that it had weapons of mass destruction. Confidence that every country will gain under a benign regime of globalisation has been shattered. It is now each country for itself, and nations are looking out to make the most of the situation, the prime example being India and China buying Russian crude at discounted prices. Attempts are being made to conduct trade in currencies other than the US dollar. The global economy is getting fragmented.

Some analysts, such as Credit Suisse strategist Zoltan Pozsar, have said that we are in the midst of an economic war and considerations of economic efficiency will be replaced by security considerations. That will mean more arms production, more investment, the consumption of more commodities and structural inflation. Interest rates will stay higher for longer. World trade will suffer.

Yet, the markets worldwide have been surprisingly resilient. Perhaps they believe that Ukraine is just one more local war, like Iraq or Syria or Afghanistan and it’ll soon be business as usual. And it’s possible that they are right, that Putin will have to go, and Russia will be forced to sue for peace, just as it did a century ago under the treaty of Brest-Litovsk when it gave up large swathes of territory, including Ukraine, in exchange of peace.

In any case, the Russia-Ukraine war is just a sideshow -- the real war is the economic one between the US and China. All the more reason, therefore, for China to support Russia, since the full force of the US will turn on China if Russia collapses.

Amid all this talk about geopolitics and geoeconomics, of course, we should not lose sight of the human tragedy of war. But we must also consider whether the preceding period of peace created the conditions that led to the war. The German poet Bertolt Brecht said it best:

“Those at the top say: peace

And war

Are of different substance.

But their peace and their war

Are like wind and storm.

War grows from their peace

Like son from his mother

He bears

Her frightful features.

Their war kills

Whatever their peace

Has left over.’’

At a time when war hysteria in the US is so high that its Air Force is shooting down weather balloons, Brecht’s words have never been more relevant.

Cheers,

Manas Chakravarty

Here are some of the stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:

Stocks 

Shriram Finance: is the new journey worthwhile? Zee Entertainment—what do insolvency proceedings mean for the stock? Coforge, Coal India—is higher dividend the only merit, Dixon Technologies,  PVR—is the worst over?, Uflex, IDBI Bank divestment, Discovery series—can this small-cap metal stock outperform, Trent, Samvardhana Motherson’s acquisition of SAS, Railway engineering sector, Why the IT sector calls for an upgrade now, Sumitomo Chemical India, V-Guard, CMS Info Systems, Concor, Why are paper stocks lying low despite strong earnings?, Royal Orchid Hotels, Weekly tactical pick, Dhanuka Agritech

Economy

El Nino is coming, get ready

RBI report says Union Budget seventh horse in sun’s chariot

RBI has found its animal spirits even if the economy has not

This time around, the inflation trajectory is different

Economic Recovery Tracker

Service sector rebound fuels growth and inflation in developed economies

RBI’s fine dance between monetary apostasy and decouples mythmaking

Markets

The great Indian equity sale

Creative accounting impairs visibility for investors

Market outlook ranges from hard landing to soft landing to no landing scenario

Why selective extension of trading hours is good for Indian market participants

Why price targets fail

Why are retail investors running away from the cash market

Whales devoured retail krill as crypto crashed

Financial Times

Revival of listings in New York in doubt as Beijing overhauls rules on foreign share sales

The rise of kitchen table economics

BHP optimistic on China and India growth

How Apple captured GenZ in the US—and changed their social circles

Companies and industry

HZL-Vedanta — the government has a surprising escape clause

Concor—uncertainties about stake sale

Fortunes of cotton textile industry go into a tailspin

REITs — caught in a maze of macro and regulatory issues

Sugar and ethanol

Pain points ease for pharma companies

Annapurna sale ends HUL’s branded commodities foray

Capgemini results indicate soft landing for IT services

Policy 

Why we should worry about AI and its ethics

India’s PLI schemes must boost SME sector

Sebi’s anti-money-laundering guidelines need to be pared to the bone

Lithium discovery excellent news, now for the hard work

Geopolitics

Bankruptcy may weaken Pak-China link against India

Others

Marketing Musings, Startup Street, GuruSpeak