Horizons newsletter – Week 23 // 2017
Horizons is a bi-monthly Dasym Research initiative to show you how the Dasym themes have been in the news. We publish the Horizons on our website and as an email newsletter. If you wish to receive the email, please contact Investor Relations.
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A (Silk) Road to Pax Sinica?
Recently, China hosted a summit around its ‘One Belt One Road’ (covered in an earlier article), which is estimated to be the largest global investment project by a single country in history. Beyond pure trade, the summit emphasized broader cooperation around sovereignty and security. This will, however, create new challenges. By becoming very deeply involved in other countries, China risks entangling itself in local politics, especially in Central and West Asia where there are many weak states and countries with domestic conflict. These challenges are, however, unavoidable. After transforming into the “factory of the world”, emerging hegemonic powers always roll out a new global infrastructure. The ‘Pax Americana’ built on the investments of the Marshall plan in Europe and the Bretton Woods institutions after World War 2. In the 19th century, England created a maritime route to the east through hubs like Gibraltar, Malta, Singapore and Hong Kong and it financed railways as far away as Argentina. Such historical expansions always stimulated maritime and rail infrastructure. But as the emerging hegemon needs to strengthen its growing global profile, they also boosted softer domains like media and communication.
Natural selection cybersecurity
Wannacry has underscored the need for cybersecurity. Traditional security companies are logical beneficiaries and their stock rallied after the attack. However, parties outside that particular industry seem to be even further ahead in security; parties whose vulnerability to cyberattacks drove this advancement. Firstly, some countries have already been acknowledging that cyber security is essential to their safety. Estonia saw a wave of attacks in 2007, which was considered one of the first major examples of cyberattacks on a nation. This urged Estonia to take action and to score higher on cybersecurity. Secondly, companies where security has been part of their core business have had the right focus for years. Payment providers’ advancement in security, for example, was driven by demanding laws and regulations on consumer data protection. In less than a year, the EU’s General Data Protection Regulation (GDPR) will be implemented. This type of international regulation can speed up the improvement of cybersecurity. It can simultaneously strengthen European countries’ individual strategic positions and these companies’ innovation and new businesses.
Cryptohedging
Last week, the Bitcoin smashed the $2000 bar, mostly driven by an increasing demand from Japan and South Korea, as the Japanese government recently recognized Bitcoin as a legal tender and the Korean government started an anti-money laundering campaign that drives demand for the cryptocurrency. Furthermore, Bitcoin buying also increased significantly in Brazil and the U.S., two countries that saw big political scandals unfold in May. The accusation of bribery of Brazilian President Temer, and ‘Trump’s triple’ – firing of FBI boss Comey, the report that Trump disclosed classified information to Russian officials, and the leaked memo between Trump and Comey – caused American and Brazilian stocks to plunge and political risk to surge. The ‘traditional hedge’ against these events has been gold, considered the ultimate ‘safe haven’ for investors that fear volatility and market turmoil. However, the price of gold barely moved between May 1 and May 25 (it even slightly decreased). The value of the Bitcoin, in contrast, almost doubled (+88.9%) within these three weeks. It seems cyberspace is becoming a safe haven for real world problems.
