First of all, it should be pointed out that much may change with the possible election of Donald Trump on 5 November. But the effects of his election will not be felt until 2025 (when he takes office on 20 January that year).
Let’s now take a look at the „hottest“ geopolitical issues that will continue to accompany us this year.
Stalemate in Ukraine
As far as the war in Ukraine is concerned, 2 years after the invasion, it is still the hypothesis of a long conflict with no winners and no losers that dominates this year, following the failure of the Russian offensive, followed by the failure of the Ukrainian counter-offensive. A sort of „Korean-style“ scenario is being confirmed (in military terms).
Putin cannot turn back the clock without undermining his authority over his country’s military-police machine, and there are no internal regulators (public opinion, the media, the oligarchs, etc.) to make him change his mind.
Putin also knows that authoritarian regimes rarely survive military defeats, except in the case of a headlong rush (El Assad in Syria). But more fundamentally, Putin believes that time is on his side. He is certainly counting on Trump’s return in November 2024.
The Ukrainian government still rejects the concept of peace at any price. That said, the „sacred union“ around Zelensky is cracking, and there is a certain fatigue among the population about the war.
In reality, what will matter most this year is the extent of Western public support for Ukraine. In the United States, the Republican/Democrat polarisation over the war in Ukraine represents a real existential risk for Ukraine.
For its part, the European public perceives the conflict as getting bogged down, and support for the delivery of arms to Ukraine is waning.
What about Taiwan?
In the end, 13 January saw a fairly clear victory for the candidate of Taiwan’s ruling party (DPP), the party furthest removed from the People’s Republic of China (PRC).
Lai Ching-te won the presidential election by a wide margin, with around 40% of the vote, and a lead of almost 7 points over the runner-up, Hou Yu-ih, the Kuomintang candidate, a result that was well above the latest polls.
In our view, the status quo will prevail this year. On the one hand, the differences between the main parties on their attitude to China (and also on defence) have faded in recent years. None of the 3 candidates advocated independence or unification with China. On the other hand, the absence of a legislative majority will somewhat curb any desire for tension with the PRC. Out of a total of 113 (majority of 57 seats), the DPP won 51 seats in parliament, a significant drop on the 64 seats it previously held. Finally, Han Kuo-yu, the candidate put forward by the Kuomintang (KMT), more favourable to closer ties with China, was elected Speaker of Parliament with 54 votes, compared with 51 for Mr Lai’s DPP candidate.
Here too, we will have to wait for the American elections on 5 November to see whether any changes in American diplomacy are likely to bring substantial changes to the current situation. For it is clear that Taiwan will continue to need American protection.
Gaza
As for the events in Gaza, there will be no macro impact as long as Iran (the only major oil producer potentially involved as things stand) is not directly involved.
That said, the situation is having indirect repercussions via tensions in the Red Sea (fuelled by the Houthi rebels in Yemen), which are affecting shipping prices and increasing delivery times, particularly on Asia-Europe shipping routes.
As things stand, however, we are a long way from the tensions of 2021-22 on the production lines. This is because:
- Inventories of manufactured goods are more plentiful
- Cargo capacity is higher
- There is no explosion in demand for manufactured goods as in 2020-21
- In 2020-21, health standards had tightened constraints
- There is excess capacity (China, Europe), unlike in 2021-22
If tensions persist, there will nevertheless be an effect (of a few bp) on Western inflation.
Expansion of the BRICS
More generally, many observers have noted that the enlargement of the BRICS in 2023 (now with 11 members, representing 45% of the world’s population) could lead to a new stage in the structuring of the global South, likely to foster a compartmentalisation of the world and a source of hostility to the West.
This seems to us to be excessive.
First of all, it is an enlargement rather than a deepening, which remains a challenge given the heterogeneity of the members. There is no economic or military alliance within this structure. There are no permanent structures, no common market and no common standards. What’s more, their political systems are very different and ideological differences are marked.
In addition, relations are not good between the 2 major players in the BRICs, China and India (closer ties between China and Pakistan, the Silk Roads initiative, of which India has been the most virulent opponent, renewed tensions in border areas).
We do not see this as a return to the Cold War. The idea behind this enlargement, from an economic point of view, is to have a greater say in the reform of the current multilateral system, which is dominated by the West, and to encourage the de-dollarisation of the world.
From a geopolitical point of view, the idea is to create an anti-American platform to serve the geostrategic priorities of China and Russia.
Conclusion
All in all, geopolitics is unlikely to have a significant impact on the markets this year. 2025, on the other hand, could be much more complicated.