Wednesday, April 7, 2010


Time presented an interesting reflective article on Obama's nuclear challenges. Here our interpretation of it and the consequences for the Emerging Markets. Click on the link below our article for the original Time article.

It took the Obama administration far more time than expected to work out a technical nuclear arms reduction treaty with Russian president Dmitry Medvedev. Taking into account the time needed for Senate approval, it is now almost 100 percent certain that another 'project'... on Obama's nuclear agenda - the Test Ban Treaty - will be a harder nut to crack.

Obama and Medvedev: Nuclear Treaty

But it is only the first step for Obama

Senate approval is again needed but with Democrats expected to loose seats in the elections in November it will be harder to gain a two-third majority. On the one hand it is great to have an inspiring president that really tries to act whenever he says 'Yes we can', be it on the health care issue or on nuclear issues. But acting and public relations are one thing. Senate negotiations and chess games with Republicans another. The USA is one of the 8 nations (out of a group of 44) that still have to ratify the Test Ban Treaty. The bulk of Republicans is against it because they believe that it is a 'scam' by technologically weaker nations that might benefit from it. Less tests means less opportunities for the US to maintain and build on its technological lead, especially when taking into account that it is not certain that other countries will not just say that they stopped testing with them actually holding secret tests.

Obama's difficult political chess battle:
With the Republicans at home and with Emerging Markets in the global arena

The list of other nations that still have to ratify illustrates once again the growing importance of Emerging Markets: China, Egypt, Indonesia, Iran, India, Israel, North Korea and Pakistan. With the exception of North Korea leading Emerging and Frontier Markets nations that are either part of BRIC or Goldman's Next-11 or a technology hub (Israel).

One of the problems with global knowledge dissemination is that technology becomes far more widespread. This leads to a growing group of nations that do not understand why the leading nations decided to sign treaties among themselves indicating that 'for the sake of world pace' others cannot get what these nations do already have.

The US president is a charismatic figure and he has great advisers. But Emerging nations do want their piece of the action in every area. Nuclear technology is just one of them. The good thing of a globalizing world is that it enables nations to get a piece of the pie through international trade and/or international investments (portfolio or direct). Spreading fear and suggesting they all just want nuclear energy to conquer world domination leads us to a situation similar to how the weapons talks with Russia started decades ago. Cold war with Emerging Markets is not the way to go. It is not realistic, and we do not have the money and political leverage anymore to make it work.

One way or another president Obama needs to keep his agenda moving, but with conservative Republicans thinking differently about these issues that will be a hard nut to crack. The president is seeing things in the right perspective when looking at it based on long-term analyses. Sadly for him, political decision taking is never long-term but always shorter-term focused.

Economic growth / financial momentum is what can help. Conclusion: some kind of 'spring' feeling in the relationship and talks with nations like Iran, China, India and Pakistan is necessary one way or another. And that doesn't only hold for agenda points like the valuation of the Chinese yuan, it holds for the nuclear issue as well. Not a very popular line of thought in large parts of the US and that is why we keep or fingers crossed. The next 6 months of US internal politics on these issues is going to be very important for Obama and for the world.

What if YES WE CAN becomes: UNFORTUNATELY WE COULDN'T? In that case uncertainty and risk levels globally will increase in an environment in which relative power of the Chinese and commodity producers will go up vis-a-vis that of traditional powers. Within the Emerging Markets portfolios this will however be a different environment, namely one in which exporters that rely on exports to Western nations should receive a lower portfolio weight and those that are more focused on domestic sales can have their allocations increased.

Click here for the Time article on Obama's nuclear challenges

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