WELCOME TO THE Year of the Horse. I don’t subscribe particularly to the supposed truths of astrology, either of the western or oriental versions, but there are plenty who do. US president Ronald Reagan famously based his schedule on consultations with an astrologer, and vast numbers in Asia pay what many sceptics will regard as good money wasted to hear from feng shui geomancers what the year of a new Chinese astrological sign has in store for them. This runs from how to arrange the furniture in their homes and offices to the recommended approach towards investing.
If you want to know how so many Asian investors will approach the Year of the Horse, brokerage firm CLSA every Lunar New Year produces a hugely popular investment forecast for the Hang Seng index. The report might appear tongue-in-cheek to some, but I suspect it is read in deadly earnest by many Asia-based investors.
The company consulted Hong Kong’s feng shui masters and determined that the fire element that prevails in the year of the wood horse will light a bullish flame under the Hang Seng and propel it over the 28,000 mark. I find that a tough call to go along with, particularly given the softening of China’s economic growth, but there you go. Plenty will take the predictions on board and act accordingly.
There are warnings, though, that the predominant elements of wood and fire in the year of the horse will produce unexpected explosions. If the feng shui masters are right, then 2014 might turn out to be a year where the “black swan” – the term coined by Nassim Nicholas Taleb for an unpredictable event that has major consequences – determines the direction of global financial markets.
2014 might turn out to be a year where the “black swan” determines the direction of global financial markets
NOW, ANY PREDICTION about what black swan event might occur in 2014 would be at odds with Taleb’s theory. Such an event can never be predicted, but is always heavily rationalised ex post facto. To that extent, the 9/11 attacks in New York, which would qualify as a black swan event, have been put into the context of the rise of Islamic fundamentalism and its organised expression via Al Qaida. But the truth is that no one saw them coming, or at the least the US authorities did not (conspiracy theories aside), otherwise the measures which were subsequently put in place to prevent such an attack would have already existed.
Similarly, the black swan event that precipitated the First World War was the assassination of Archduke Franz Ferdinand in Sarajevo. But hindsight tells us it was the rise of German militarism and expansionism that started that chain of events.
So as far as Asia is concerned this year, let me try a little hindsight in foresight, so to speak. We are now witnessing the rise of government-sponsored nationalism and rivalry between China and Japan that was last seen in such explicit form in the run-up to the Second World War.
Japanese Premier Shinzo Abe inflamed this rivalry when in December he visited the Yasukuni shrine, a war memorial in Tokyo which honours Japanese war criminals along with the country’s war dead. He said the visit was conducted in the spirit of peace, to help ensure such events did not happen again. China did not buy that argument and was furious.
Something more egregious happened last week, when one of the governors of Japan’s NHK national broadcaster denied that the Nanjing massacre of 1937 actually happened. That it did, when Japanese troops entered the then Chinese capital and killed thousands of civilians (Chinese historians say up to 300,000 were massacred), is beyond dispute.
“In 1938, Chiang Kai-shek tried to publicise Japan’s responsibility for the Nanking Massacre, but the nations of the world ignored him. Why? Because it never happened,” Nayuki Hyakuta, a novelist chosen by Mr Abe to sit on the board last year, reportedly said.
ALL OF THIS is very disturbing, not least because it is emerging in the context of an arms build-up in the two countries and amid Abe’s apparent preparations to tear up Japan’s post-Second World War pacifist constitution and allow Japan the military role the constitution has denied it for the best part of 70 years.
But it is all the more troubling because of the potential flashpoint that exists between China and Japan over the disputed South China Sea atolls known in China as the Diaoyu Islands and in Japan as the Senkakus. I wrote in this column last year about the potential for the conflict on this issue to get nastier and since then it has. In early January, Japan scrambled fighter jets to warn off a Chinese government aircraft which came within ninety miles of the islands. This came just two months after China declared an air defence zone over the East China Sea and is said to be preparing to declare another over the South China Sea, something which is likely to put the US on high alert and prompt a major rethink of its regional stance towards China.
You can’t predict a black swan event. But in the spirit of Chinese astrology, if there is one to emerge from Asia, my money is on a military clash in the South China Sea. If it happens, as always with these things, everybody will say they saw it coming. Happy New Year.