Content Detail

• Content META

  Title	Tokyo finds favour despite Beijing stand-off
  ID	29025441
  External ID	29d82c736fabf3b2fba5a32cfefcfb20
  Author	Dan Hurley
  Published Date	Dec. 5, 2025, 4:57 a.m.
  Summary	Tensions over Taiwan have reignited emotions in China and Japan, but analysts say the Asian economies are so intertwined that they will continue their economic collaboration
  Tags
  URL	https://www.pwmnet.com/content/e5e8d1e3-0eee-4bc8-968e-01c952c6cea3
  Sentiment	Negative: 0.03681    Neutral: 0.04629    Positive: 0.91690
  Relevance	0.02349

• Content Details

  Content ID	36635669
  Key	7917f373-0981-44b0-a8a5-3abf2d4c6c86
  Content	Chinese broadcast media, echoing pronouncements from the Beijing authorities, have recently focused on one key geopolitical development — a hostile stand-off with neighbouring Japan. Following high profile comments of newly elected Japanese prime minister Sanae Takaichi — describing any potential Chinese attack on Taiwan as an 'existential threat' to Japan, even requiring military response — Beijing announced economic sanctions. Officials talked about making the Japanese economy suffer substantially, as Beijing blocked imports of much-prized Japanese seafood and scrapped joint events between the two Asian nations. Many Chinese tourists immediately sought to toe their government's line, axing travel and tourism plans to Japan in response. 'When there was Russia's full-scale invasion of Ukraine of February 2022, there was an initial shock and then remarkably, markets adapted to there being a large-scale conflict in Europe,' says Louise Tumchewics, an expert on conflict studies and visiting fellow at the University of Southern Denmark during filming of a forthcoming early December episode of PWM's Tea Break. 'With China and Japan, however, I could see this being much more consequential for the global economy…given just how crucial Taiwan and the Taiwan Strait area are for China, Japan, Taiwan and the rest of the world.' Given the unpredictability of geopolitics, and 'the future trajectory of ongoing events' in Asia, Cheuk Wan Fan, Hong Kong-based chief investment officer for Asia at HSBC Private Bank stresses the importance for private clients of managing risks and positions within their investment strategy, despite the generally positive backdrop. Japanese exporters will continue to benefit from a weakening yen. Moreover, she emphasises the Japanese government's policy roll-out in response to geopolitical uncertainty. The 'massive fiscal stimulus' she says, equivalent to more than 3 per cent of Japanese GDP, 'will directly support economic growth'. Consumers will also be given fiscal incentives to spend, now that Japan has exited its deflationary stage and prices have once more began to rise. For HSBC, this means focusing on Japanese consumption plays, and backing financial institutions, which have been delivering solid performance, while avoiding bilateral tourism and trade stories. 'In terms of risk management, we will avoid those sectors which may be impacted by a deteriorated trade relationship between China and Japan,' says Ms Fan. Like HSBC, many investors remain positive about Japanese equities, despite current tensions with China. 'Japan's equity outlook remains cautiously constructive despite evolving geopolitical and economic dynamics under the new prime minister,' says Dan Hurley, portfolio specialist in the international equity division at US investment house T. Rowe Price. Japan's equity outlook remains cautiously constructive despite evolving geopolitical and economic dynamics under the new prime minister Dan Hurley, T. Rowe Price 'While recent political shifts have introduced uncertainty, history suggests Japan and China are likely to remain pragmatic in navigating their periodic trade tensions,' says Mr Hurley, citing Japan's release of the Fukushima treated water in 2023, boat collisions and the rare earths dispute as examples. 'These were contentious at the time but didn't really have a major impact on trade, perhaps only having a small impact on tourism and consumer exports.' The two economies, he says, are deeply intertwined, with both sides recognising the importance of maintaining stable commercial ties, given the scale of bilateral trade. As well as the new prime minister's pro-growth policies, including continued structural reforms, productivity enhancement and corporate governance improvements, Mr Hurley highlights the renaissance of Japan's semiconductor system as an 'incremental tailwind' which may help maintain the country's investment case. 'TSMC's expanding production presence, where progress has been smoother than its efforts in Arizona, reinforces Japan's strategic role in the global chip supply chain, even if current output is not yet at the leading edge,' he adds. Sentiment is even more positive at rival US funds firm Neuberger Berman, where equity analysts believe investment from overseas chip giants will greatly improve the sustainability of Japan's growth over the mid- to long-term. The Japanese government is taking a holistic approach to wooing such companies, says Neuberger's head of Japanese equities, Keita Kubota. 'In the case of TSMC, the Japanese government not only provided tax breaks and subsidies to the Taiwanese chipmaker, but also facilitated relationship building with local universities to set up training centres and programmes to educate and train future engineers.' Many of our investment companies with exposure to China have reacted with calm as this is not the first time relations between the two nations have soured over political issues Keita Kubota, Neuberger Berman The semiconductor sphere is also seen as one of the key focus industries under Ms Takaichi's economic policy. The Japanese economy continues its 'paradigm shift', inching closer to the end of 'lost decades' of deflation, he says, now that wages are continuing to increase, while companies pursue corporate governance and capital management reforms for shareholder value creation. The investment case for Japan will be further strengthened by the PM's targeted fiscal expansion policies, by 'bringing the growth story back to the driver's seat of the economy', says Mr Kubota. 'Many of our investment companies with exposure to China have reacted with calm as this is not the first time relations between the two nations have soured over political issues,' he says. Neuberger's equity strategists believe China will remain a key market for Japan and Japanese companies 'with strong fundamentals backed by pricing power.' These companies, says Mr Kubota, should be able 'to continue seeing sustainable growth in any market including China over the long-term, and these are the types of companies we like to invest in'. Page 2 The era of collaboration is officially over, as a fast-reshaping new world order leads to a widespread bond portfolio shift, according to Geneva-based wealth manager Pictet. 'We're moving from a place where countries and economic blocs were collaborating with each other to where everything is divided by and negotiated between one country and another,' says Alexandre Tavazzi, head of the chief investment office and macro research at Pictet Wealth Management. This 'turning inward' phenomenon, which began with the administration of Barack Obama, is now gaining pace under the leadership of President Donald Trump, he says. Under his tenure, Mr Obama stressed the importance of decreasing US reliance on oil from geopolitically unstable regions, especially the Middle East. We're moving from a place where countries and economic blocs were collaborating with each other to where everything is divided by and negotiated between one country and another Alexandre Tavazzi, Pictet Wealth Management The US increased its crude oil production and became the world's largest natural gas producer by 2011, reducing the 'strategic necessity' of military entanglements in oil-producing countries like Iraq. 'Then, in Trump 1.0, he said to China, 'we are going to restrict the export of semiconductors to you',' says Mr Tavazzi. This increased the need for the US to develop its own technology ecosystem. President Trump's unprecedented tariffs accelerated the period of entrenchment that had already been there, he adds. This shift is not only geopolitical, but fundamentally financial. Globalisation allowed the US to outsource production, leading to persistent trade deficits with countries like China. In turn, these 'surplus nations' recycled export earnings into US Treasuries, effectively financing America's fiscal deficit. 'You cannot change trade flows without changing financial flows,' says Mr Tavazzi. 'China was, in a sense, financing its main client.' Trade wars weaken this dynamic. Lower trade surpluses mean less foreign appetite for US debt, raising questions about how the US will continue to fund its own deficit, which is at the heart of Pictet's new investment paradigm. There are several risks associated with this new climate, believes Mr Tavazzi. While he expects only a 1 per cent decline of the dollar over the next decade, he is more concerned about a new risk highlighted by the war in Ukraine. Central banks that hold dollar reserves may suddenly lose access due to sanctions, highlighting the vulnerability of relying on currencies controlled by geopolitical rivals. This has driven central banks to diversify into assets such as gold, which lack liability, and has risen despite higher interest rates. Along with the US, fiscal deficits will also plague the UK and France, says Mr Tavazzi. As a result, investors are seeking 'real assets' to hedge against currency and sovereign risk, resulting in a major challenge to the traditional 60/40 model portfolio. Inflation, combined with these fiscal problems mean stocks and bonds are also more correlated, reducing diversification benefits. Currency management is also increasingly crucial. To adapt, portfolios should include non-correlated assets such hedge funds. Within bonds, credit from financially strong companies, sometimes borrowing cheaper than their own governments, offers a compelling alternative to sovereign debt. 'I think the 'term premium' is coming back,' reflects Mr Tavazzi when discussing fixed income, referring to the additional return investors expect for holding longer-term bonds compared to a series of shorter-term bonds over the same period. Long-term yields have risen sharply. In the UK, 30-year borrowing costs went from 1 per cent to 5 per cent, in the US from 2 per cent to above 4 per cent, he says. However, 'the term premium is not sufficient', offering only 50 to 80 basis points of compensation for the risk of holding long-term bonds. Because of this, Pictet currently prefers a short duration in fixed income until 'the price is right'. Mr Tavazzi advises investors to focus on 'private balances', favouring credit over sovereign bonds and to keep sovereign maturities short while fiscal risks remain underpriced. Clearly, we are in a period of US retrenchment from the international scene. America First is leading to less multilateral engagement François Savary, Genvil Wealth Management He also points to a clear paradigm shift in Europe's revival story. The Munich Security Conference earlier this year sent a strong message, signalling that geopolitical risks are now largely Europe's responsibility. This wake-up call has driven European leaders to act decisively. Germany, for instance, abandoned its constitutional debt brake, a move Mr Tavazzi calls 'not a small thing'. A reversal in fortunes means countries once viewed as Europe's fiscal challenges — Italy, Spain, Portugal, and Greece — are showing improvement. Italy is expected to return to a 3 per cent budget deficit by the end of the year, and Greece is repaying IMF loans early, a remarkable turnaround. Germany's shift from relying on cheap Russian gas to investing heavily in its infrastructure signals new growth. Mr Tavazzi forecasts nominal European growth of around 4 per cent over the next decade, above long-term expectations, which is positive for companies. François Savary, founder of Genvil Wealth Management in Geneva, offers a nuanced take on today's geopolitical realignment. 'Clearly, we are in a period of US retrenchment from the international scene. America First is leading to less multilateral engagement,' he says. Yet he adds that regional blocs are starting to respond to the vacuum: 'There are signs of a move towards more collaboration. I would consider that both forces — retrenchment and collaboration — are at play.' Europe, notes Mr Savary, faces both economic and geopolitical threats from US disengagement, particularly around trade and Nato's future role. Still, he sees the continent responding robustly. 'Europe is never better than when under threat,' he says. Initiatives like a European defence plan, continued support for Ukraine, Germany's fiscal shift, and progress on Mario Draghi's economic proposals suggest a renewed willingness to strengthen the bloc's cohesion and potential. But he also warns of a political wild card: 'Populism could become more of a problem in the coming years for those who want to move ahead.' Asia, meanwhile, could benefit from de-dollarisation trends and a more prominent Chinese role in shaping a regional monetary system. 'The US trade policy could induce countries to reinforce bilateral economic ties through regional institutions,' Mr Savary says. But Asia remains deeply exposed to US–China tensions: 'Adverse forces could make these processes quite erratic.' Page 3 Traditional venture capital models don't work for defence. While the full-scale invasion of Ukraine, a grim three years ago, has drastically shifted investor (and public) perception of funding defencetech from 'taboo' to necessity, this is still not enough. New funds, such as D3, the Nato Innovation Fund, Archangel, Expeditions Fund and Twin Track Ventures, have emerged and highlighted the step change in investor appetite. These firms are doing crucial work, backing innovation across the defencetech sector. However, some challenges still remain within the industry. The timelines are too long, the customer base is too small, and the risks are too high. Yet relying solely on government procurement is too slow for today's evolving battlefield realities. Despite the UK government's new £250m ($335m) defence industrial strategy and the fact that it pledged its most significant sustained increase in defence spending since the cold war, this does not even begin to scratch the surface of what is needed. Not only is Ukraine at war, but the sanctity of future European peace is precarious at best. Relying solely on government procurement is too slow for today's evolving battlefield realities Late last year, unknown drones flew over UK airbases, and more recently, there has been a slew of cyber attacks across Europe, not to mention Russian drones being shot down in Polish airspace. These concrete examples show the growing threats — or at the very least, highlight the chinks in our national security armour — that we face. Traditional venture capital strategies will not adequately address the problem, as western European countries can't compare with the three countries with the highest military spending globally, the US, China and Russia, respectively. We need another form of defencetech investment, and we need it quickly. The answer is blended capital. This newly emerging financial architecture combines state-backed funds, private equity, multilateral institutions, family offices, private banks and foundations, and philanthropic capital to achieve a common goal. By utilising all of these available resources, we can unlock the scale and speed needed for defence innovation. Blended capital de-risks projects and opens access to new markets, which makes the endeavours more attractive to investors seeking market-rate returns. Fostering a symbiotic relationship, where one party is not more important than the other, but rather all are crucially necessary, can overcome the aforementioned hurdles around production and procurement. Unsurprisingly, fast innovation saves lives. This requires large amounts of capital and readily open channels that take something from an idea to tangible technology for military use. Our attention should turn to funding battle-proven technology that has been forged in the fire of actual warfare. And there is no better 'testing ground' in the world right now than Ukraine It should go without saying that speed does not negate the need for this technology to be effective. Pumping millions (or even billions) into useless technology that has no real use or impact on the battlefield is a gross mismanagement of funds. More than the inevitable waste of money this would be, is the sheer loss of human life. That is why our attention should turn to funding battle-proven technology that has been forged in the fire of actual warfare. And there is no better 'testing ground' in the world right now than Ukraine. Ukraine, with its urgent needs and proven solutions, is the ultimate test case. By building a framework where governments de-risk, investors scale, and innovators retain upside, Ukraine can pioneer a capital model that not only powers its survival but redefines how the West funds defence innovation in the 21st century. Civilians in Ukraine's largest cities have faced swarms of drones targeting them indiscriminately. It is not troops or tanks doing the most damage, but anonymous pilots 30km away from their targets and algorithmically programmed machines. So, how do we stop this? One of the only ways to stop them is known as 'electronic warfare' (EW), jamming the signals at a protocol level to neutralise them. One such company harnessing the power of blended capital is Kvertus, a Ukrainian developer and manufacturer of anti-drone systems for military use, engineered and battle-proven in high-intensity conflict. The EW company supplies the armed forces, intelligence services, and law enforcement of Ukraine. To date, the technology has helped to save more than 100,000 lives since the Russian invasion. Take Project Atlas, the anti-drone defence initiative developed by Kvertus. Designed as a 1,300 km electronic warfare 'wall' across the Ukrainian frontline, it will require more than £100m to deploy. Kvertus has already committed more than £10m of its own capital into the research and development of this unparalleled technology. In addition, private Ukrainian businesses have contributed around £13m, given largely as donations, as is common in Ukraine's wartime context. This demonstrates the depth of national commitment, but it is not sufficient to meet the full capital expenditure required. To close this gap, there is a unique opening for foreign investors and private capital. Project Atlas is more than a Ukrainian defence programme; backed by the Armed Forces and the government's Brave1 platform, it is a blueprint for Nato countries bordering Russia and a signal of how allied nations will safeguard their security in the years ahead. This is where blended capital becomes critical: combining government backing with private equity, family offices and philanthropic funds accelerates deployment, de-risks the investment, and allows investors to be part of a project that is both strategically vital and financially compelling. Times of war don't just reveal who is fighting; they also expose how prepared the world is to help. With this kind of warfare, investment must evolve as the technology does, or it risks becoming irrelevant. Policies and financial models that limit life-saving innovation are not only outdated but dangerous. It's time for blended capital to step up and speak out. The combination of impact investment and philanthropy has both moral and financial returns. It permits such banks and foundations to generate returns from infrastructure and technology investments within their alternative assets allocation bucket. When state funds, private equity, family offices, private banks and foundations, and philanthropic organisations work together, wars can be ended and lives can be saved. Andriy Dovbenko, founder and principal, UK-Ukraine TechExchange Page 4
  Content Reference URL	None

• Publisher

  None

• Data Source

  Data Source Name	NewsCatcher (#303)
  Data Source Type	news
  Data Source URL	https://www.newscatcherapi.com/
  Description
  Weight	1