The Impact of Politics on Global Financial Markets Contd 

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In this article let’s walk through Asia, especially from the eyes of India. The rise of Hindu nationalism in India is a major concern.

Both US President Donald Trump and Modi used strong rhetoric on the campaign trail and within their respective administrations. In an ironic twist, their ideological similarity may be the driving force behind a schism in diplomatic relations. Tensions between the two have risen in 2019, with markets concerned that Washington will launch another trade war in Asia, opening a second front in India after engaging China.

Nationalist campaigns and governments carry political risk because their very nature relies on displaying strength and frequently equates compromise with capitulation. The financial impact of a diplomatic breakdown is exacerbated in times of political volatility and economic fragility by the fact that resolving a dispute is likely to take longer due to the inherently stubborn nature of nationalist regimes. 

Markets largely welcomed Prime Minister Narendra Modi’s re-election, though some remained concerned about the impact of Hindu nationalism on regional stability. Modi, on the other hand, has a reputation as a business-friendly politician. His election enticed investors to allocate significant capital to Indian assets.

However, investors’ optimism is tempered by periodic clashes between India and its neighbours over territorial disputes. India and Pakistan have been in a tug of war for power dominance essentially their independence. During the first few months of 2019, India-Pakistan relations deteriorated dramatically due to a skirmish over the disputed Kashmir region. Since the partition of India in 1947, hostility between the two nuclear powers has been a constant regional risk. 

Tensions between India and China, particularly along the disputed Line of Actual Control (LAC) in the Himalayan Mountains, shook Asian financial markets. The news of a skirmish between Chinese and Indian troops in June 2020, which resulted in over 20 deaths, raised concerns about what further escalation could mean for regional security and financial stability.

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