A goose in the crossfire

Theresa May wrestles on in the mud of No. 10. The value of the pound has taken a return flight to where it was on 10 December before the no confidence commotion, this short act of the play now concluded.

But the show goes on, and now we turn our opera glasses westward, to where the latest act in the Cold War II drama is unfolding, and has impacted certain investors already: Canada.

It’s here that a Chinese telecoms executive… on her way to Mexico from Hong Kong… was arrested by the Canadians… at the request of the US government… for violating US financial sanctions against Iran.

The script for this play is bulky, but I suspect the plot is simple enough to understand. The lady in question, Meng Wanzhou, is the chief financial officer of Huawei Technologies. Huawei is probably best known in the UK for its smartphones, but it is actively involved in the development of 5G broadband technology, which will become the new plumbing of the internet.

Whoever controls such plumbing is in a position of immense power, as they can control or monitor the data of those that rely on such plumbing. It is for this reason that the National Defense Strategy Commission of the US, a nonpartisan group of Republicans, Democrats and independents, has highlighted Chinese 5G as a national security threat to the US.

From the report, emphasis mine:

We remain concerned, however, that America’s edge is diminishing or has disappeared in many key technologies that underpin U.S. military superiority, and that current efforts to offset that decline are insufficient. For example, as part of a whole-of-society approach to innovation, China is currently making great strides in the race to dominate in key areas such as Fifth-Generation Long-Term Evolution (5G LTE) broadband wireless networks.

That effort may yield great economic, geopolitical, and military benefits for Beijing—and equally great dangers for the United States.

The report expands on the threat of Chinese 5G further on:

Should Beijing become dominant in [5G], it would not only enjoy great economic advantages. It would also gain strong geopolitical leverage over countries that become dependent on Chinese technology; it would reap tremendous military benefits in the form of enhanced awareness and freedom of maneuver, superior command and control, increased lethality, and improved ability to drive future military innovation.

Was Meng Wanzhou really arrested over Iran sanctions? Well, the US seems to have gone to quite a lot of trouble to intercept and arrest her, which it has not done for other sanction breakers. From Project Syndicate:

Meng is charged with violating US sanctions on Iran. Yet consider her arrest in the context of the large number of companies, US and non-US, that have violated US sanctions against Iran and other countries. In 2011, for example, JP Morgan Chase paid $88.3 million in fines in 2011 for violating US sanctions against Cuba, Iran, and Sudan. Yet Jamie Dimon wasn’t grabbed off a plane and whisked into custody.

Details of the case have yet to emerge, but something tells me the arrest is more about antagonising Huawei and Chinese expansion into US telecoms. Whether this was the right move by the US is another matter.

That report I quoted was released on 13 November (a couple weeks after my issue on Cold War II in Zero Hour Alert, funnily enough). The writing is on the wall for Cold War II – and investors must take heed.

Huawei is a privately held company, so it’s not like its stocks have crashed. But that doesn’t mean investors haven’t been damaged. For although it’s 5G that’s in the line of fire – a goose has taken the hit.

Geese flying south

A few years ago when I was in Edinburgh, I heard students joke about seeing “flocks of Canadian Geese” flying south for winter.

Image

The “Canadian Geese” in question were wealthy foreign students, many of them from China, who wore expensive jackets made by Canada Goose (ticker: $GOOS). They’re all over the place these days, easily recognised by their logo on the shoulder of each coat.

The brand isn’t too popular with vegans due to its use of goose down – I remember seeing a massive protest outside its flagship London store a year ago. But it’s not just the vegans now. After the Canadians arrested Meng Wanzhou, Chinese customers threatened to boycott Canada Goose, which has huge implications for the luxury brand as China is the world’s largest luxury market. The stock lost almost 20% in four days.

If I’m correct in my Cold War II thesis, many other stocks will “fly south” in the coming year as international relations become ever more polarised. But there are opportunities to profit too – I’ve outlined a couple in Zero Hour Alert, already.

Coincidentally, I’ll returning to Edinburgh tomorrow to have a drink with some old buddies before heading back to Aberdeen for Christmas.

But have no fear – we’ve prepared something special for you in tomorrow’s Capital & Conflict – you won’t want to miss it.

All the best,

Boaz Shoshan
Editor, Capital & Conflict

Category: Geopolitics

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