US-China Chances of Military Conflict Now Eclipse Reconciliation

Relocation is the Compromise

Odds of a full-scale conflict between the US and China over Taiwan have doubled from 5% to 10%. Odds of a proxy war or “gray zone” conflict remain at 25%, thus yielding a 35% chance of some kind of military escalation over the coming 12 months. Investors should buy insurance against a major military escalation, they should also increase allocation to manufacturing-oriented emerging markets.