Amidst all the chaos in the US and the Middle East, it is important to keep an eye on developments elsewhere. One particular pocket of emerging risk comes from Taiwan.

In the short term, a particular point of vulnerability relates to falls in the US dollar against the Taiwanese dollar, and its impact on Taiwanese life insurers. These hold roughly US$700bn in US bonds, mostly corporate bonds [1], accounting for 6-7% of the US corporate bond market [2].

Because the exchange rate of the Taiwanese dollar and US dollar has been broadly stable in the past, a lot of this of the currency risk is unhedged. Even that which is hedged is often done on the basis of rolling 3-month hedges [3], [4]. However, a recent spike in the Taiwanese dollar against its US equivalent has led to currency losses [5]. As a result, Fitch has placed many Taiwanese insurers on downgrade watch [6]. Fitch noted that the insurers should have sufficient capital to withstand a 10% appreciation in the Taiwanese...

Six months ago, I published a blog [1] highlighting some of the risks which may arise on Donald Trump’s accession to power in January. A lot has happened since then. Comparing the risks identified with what has occurred…

1. Tariffs and trade wars - I noted Trump's election promise to levy tariffs of 10-20%, with higher tariffs on China, and that this could raise prices and reduce global growth. Sure enough, on 2^nd April, which he styled “Liberation Day”, Trump imposed a minimum 10% tariff with higher rates for those with large trade surpluses with the US [2]. These were much higher than many had feared, with the effective tariff on imports coming into the US rising from 2% in 2024 to an average of 24% [3].

Back in November, I worried that markets were not pricing in the risks posed by Trump and his tariff plans. This appears to have been borne out with stockmarkets falling sharply after “Liberation...

As the dust settles on the US Presidential election, Donald Trump is now master of all he surveys in US politics. The Republican Party is beholden to him, and through it he controls the Senate and the House of Representatives. This could enable him to push forward radical changes [1], and the Supreme Court is unlikely to get in the way. How will these changes affect the US and the rest of the world? Is the rest of the world ready for the new administration?

I see the following risks emerging from Trump’s election platform and consider these risks below. These can be broadly split in economic and financial risks (#1 - #7), geopolitical risks (#8 - #11) and climate change. Some, such as tariffs and trade wars, or Ukraine and NATO, may be very important in the short term. Others, such as climate change or higher deficits, may be more important in the longer term.

1. Tariffs and trade wars: a key element of Trump’s election campaign...

Following on from the shock of Russia's full-scale invasion of Ukraine last February, I have been doing some more thinking about what geo-political shocks might arise in 2023.

In descending order of importance, potential shocks are:

1. China v Taiwan - I think it highly unlikely that China will try to invade Taiwan itself. This would require an amphibious assault on a par with, if not bigger than, D-Day by an army that hasn't fought a war in over 40 years, let alone staged such a complex operation. However, China could try invade the islands of Matsu and Quemoy near its coast, or worse impose a blockade on Taiwan. The latter would probably draw in the US in a high stakes game of brinkmanship, and have profound impacts on the global economy which is reliant on Taiwan's sophisticated microchips, and financial markets such as US corporate bonds where Taiwanese institutions are key investors.

2. Israel v Iran - this has been bubbling...