A Geopolitical Perspective

"Most Americans are close to total ignorance about the world.  They are ignorant.  That is an unhealthy condition in a country in which foreign policy has to be endorsed by the people if it is to be pursued.  And it makes it much more difficult for any president to pursue an intelligent policy that does justice to the complexity of the world." - Zbigniew Brezezinski 

Zbigniew is a Polish American who served as National Security Adviser to President Carter in the 70s.  I have to say that since then American geopolitical views have matured considerably but are still well behind the rest of the world for the simple reason that geopolitics is not something that Americans have to deal with on a daily basis.  Unlike Europe, Russia, Africa, the Middle East and Asia (including China and India), America for all of its economic muscle really has little daily interaction with the rest of the world.  Yes it is a global economic power house that sells products around the world, exports its political agendas and tries to secure its energy providers through a combination of political strategy, economic opportunities and military might, but its citizens are mostly insulated from the rest of world.  The only borders it has it shares with two friendly nations, Canada and Mexico and on either side it has vast ocean expanses buffering it from all other countries.  In comparison most other nations are bordered by or are in very close proximity to nations that disagree with their political point of view.  They operate under the veil of secrecy and mistrust and this feeds daily into their citizen's minds etching a geopolitical point of view that dictates the countries economic and political futures.  Welcome to investing through a Geopolitical Perspective!

When investing it is imperative to take these geopolitical ideals into mind to give you a better understanding of future trends within countries and how these trends will impact future growth prospects.  The trends are all extremely long term or secular as the views are deeply rooted having taken decades to evolve and will take decades to change. This form of analysis includes a look at a country's geography, its culture and history (or a look at the history that shaped the country's culture) and the country's needs and expectations.  Once you have a clear understanding of each of these pieces of the puzzle it is a lot easier to determine a forecast for future policies and thereby a road map to industries and companies that will benefit from this scenario.

So as an example let's compare China to the United States.  As I have already mentioned the United States is protected on all sides by either friendly neighbors or vast oceans.  The closest islands on the east are the Bahamas and the threat of Cuba has been alleviated with that country's demise.  On the west the nation is protected by a massive naval port in Hawaii.  The remaining threat is from Russia in Alaska but that has always been seen as a very minor threat in that the weather and the distance from the rest of the country is vast.  The country's culture is made up of a vast array of nations that all emigrated to the new frontier and it still to this day conveys a sense of the wild west.  Mineral wealth abounds and its vast educational backbone drives its technological advances.  It is one of the world's energy giants and has vast plains that easily feed its citizens.  All in all it is protected throughout so it should not be surprising that most of its policies look inward rather than outside hence the supposed naivety in geopolitics..

China on the other hand is bordered by Russia, Mongolia, Pakistan, India, Burma (Myanmar), Vietnam and Korea.  It only has access to the ocean on its east coast and this is surrounded by Japan, Taiwan and Indonesia, all United States allies.  It has limited energy wealth outside of coal and has a vast population of unskilled and uneducated people.  Its infrastructure is in dire need of improving but it requires massive imports of raw materials to accomplish this.  It has used its vast unskilled and poorly educated masses to climb into the second spot (some argue that they are already the top spot) in terms of global economic wealth and it is using this economic might to strengthen its military and economic presence around the world as it seeks to secure its energy sources.  It is no wonder that they are fearful of the West's intentions and seek to protect their borders and the Strait of Malacca as these are vital to their prosperity.  Therefore it should come as no surprise if there is conflict in the strait particularly if the United States continues to send warships that way.

Now by no stretch of the imagination is this an exhaustive analysis, in fact I have barely scratched the surface but the example was to show you how important it is to take a more geopolitical approach to your investment analysis as this will give you a better understanding of policies that will shape the direction of economic growth within the borders of the country in which you invest,  This in turn should allow you to take advantage of secular trends improving your overall returns.