MARKET PERSPECTIVE

Oct 11-17, 2025

251st Blog for AsiaConverge

It’s a hard rain that’s gonna fall!

Image created by Bing

The good news of last week was some the release of 20 hostages in the Israel-Palestinian conflict, and of several Palestinians captured by Israel, under President Donald Trump’s Gaza peace plan. This was principally brokered by USA, Qatar, Egypt and Turkey. Hamas handed over the last remaining 20 hostages and the bodies of some, but not all, of those who have died.

Donald Trump does deserve kudos for his effort and his perseverance in getting this through. The further journey towards a lasting peace is long, complicated by the history of animosity over thousands of years. Each incident of violence by either side causes scars of hatred which fester and suppurate, in an endless, sad, circle of violence. As per the agreement, Hamas has to give up it’s weapons, but hasn’t. Instead, it is using the opportunity to eliminate other Palestinian military factions. The remaining bodies of dead Israelis must be returned, as agreed, but some may be buried under the rubble and impossible to find. This can complicate or scupper the process. Fifty five million tonnes of rubble needs to be removed and disposed before rebuilding can begin. Funds are needed for both. It may take ten years for Gaza to be rebuilt; where will the residents live till then?

It just shows the agony, senselessness and lunacy of war! One would have thought that, after two world wars and several other bloody conflicts, in Vietnam, in Iraq, in Afghanistan and elsewhere, the collective memory of their horror would lead to societies pressuring leaders to avoid them; yet leaders continue to wage new ones.

It is the old who call for war, and they youth who die fighting them. Few of the leaders are punished for their calls for war. As Voltaire said “All murderers are punished, unless they kill in large numbers, and to the sound of trumpets”

The insane tariff war, initiated by Trump on China, and the rest of the world, via imposition of ludicrously high tariffs, reached a new high of insanity. China hit back at USA, and hard, by restricting export of rare earth elements (REE), over whose supply China has 90% control. REE are universally used, eg in electronics (smartphones, tablets, laptops, TVs), in EVs, in solar energy and power systems, in Defence and Aerospace (in missile guidance and radar, in jet engines and sensors, in night vision and lasers). In substance, China virtually controls America’s defence system.

Rare earth elements themselves are not really rare; other countries, too, have them. What matters is the ability to process them. This is where China holds the key. It has curbed processing of other countries by restricting export of processing machinery, of processing technology and manpower. Thus, even if, say, Trump does a deal with, or, hypothetically, takes over, Greenland, as an example, it would take time and effort to build up processing capacity.

Such vulnerability in it’s defence infrastructure can be blamed on leadership myopia and absence of strategic planning. But also on the overreach of shareholder capitalism. Institutional investors (banks, mutual funds, pension funds) hold a majority of corporate holding and demand short term returns. Thus is born the concept of outsourcing manufacture to lower costs. The US has degraded it’s capacity to manufacture. It has, eg, a huge shortage of artillery shells and missiles, a lot of which were given as aid to Ukraine.

The illustration shows an F-35 aircraft whose take off has been impede by a Chinaman waving the red flag of rare earth minerals.

Trump has replied by imposing an additional 100% tariff on Chinese imports. Currently, about 14% of China’s exports go to USA so the increase in tariff won’t affect it badly. The curb on REE will affect USA more. It also puts Pakistan, which recently sent a batch of REE to USA, in a tizzy, because it’s benefactor, China, has warned it not to, else Chinese supply will stop.

After the REE bout, another round of ludicrous restrictions began. The USA imposed a new tariff, over a billion dollars, on Chinese ships delivering cargo to US ports. China replied by imposing penalties on other countries ships, having US interests (even financing by US banks, or a significant ownership by US funds), offloading goods into China.

In short, free global trade has been shattered thanks to Trump’s ill conceived tariff wars. It is well past time US snd China learn to tolerate one another. And well past time when Trump accepts that it is no longer a unipolar world and that he must accept that dialogue works better than bullying.

Hopefully the Israel-Palestine conflict will simmer down. Fingers crossed. However, the other, Russia-Ukraine one might escalate if Trump foolishly supplies Tomahawk missiles to Ukraine (USA has neither the surplus stock nor the funds). It is farcical that he is accusing others, including India, of prolonging the war by buying Russian oil, when he, himself, is prolonging it by such asinine suggestions.

But even as one conflict seems to simmer down, another erupts! Pakistan launched an attack on Afghanistan, over the artificial boundary created by the Brits, called the Durand line. Neither country can afford a war, but that is not a factor in consideration for launching one by the jingos who weild power.

In China, the next plenary session is due before end October and may, perhaps, result in some leadership changes. In USA the mid term elections, from April to November 2026, may, perhaps, result in a loss of Republican majority in either Congress or Senate, or both. Maybe then, this dismal spiral of trade wars and military conflicts, will end.

Last week the BSE Sensex rose 1452 points to end at 83952.

In August 2025 Indian investor inflow into equity mutual funds was a little over ₹ 33000 crores, or $ 4 billion. Per month! The IMF has raised it’s forecast for India’s GDP growth in 2025-26 from 6.4% to 6.6%. That’s perhaps the highest growth rate for any large economy and can hardly be described as a ‘dead’ economy, as Trump had done.

The benefits of globalisation, where every country produces what it is better at, relative to others, and has free trade for the rest, are vanishing. Trump’s trade policies and vacillating tariff rates based only on whims, has pummelled free trade. Trade is now carried on bilaterally, or within trade blocs. This dichotomous manner of trade will slow GDP growth.

The risk is that of a debt crisis. Countries are drowning in debt. One can’t be underwater for very long once the oxygen tank is empty. So a correction in stock markets is inevitable. It is largely because of the $ 4 b monthly additional inflow for equity investment by retail investors that the correction is being postponed.

Bob Dylan sang, ‘It’s a hard rain (a hardship or tragedy) that’s gonna fall’. When world leaders are intoxicated by the spirit of war, and have lost statesmanship and judgement, a storm may come.

Comments may be sent to jmulraj@asiaconverge.com