KUALA LUMPUR: While major geopolitical risks have largely been contained in Asia in recent years, the potential economic implications could be severe in the event of a sudden escalation, said Fitch Ratings.
The rating house said on Thursday that tensions between states could lead to impaired bilateral trade and investment and, depending on the severity, could affect investor confidence.
The potential risks, it said, go beyond the region as well.
It noted that recent events in Europe, related to Brexit, demonstrated that political events can have global repercussions for markets and economies.
“Maritime disputes in the South China Sea underscore the growing importance of geopolitics in shaping the international policy agenda of countries in the Asia Pacific.
“Fitch Ratings believes shifts in the regional and global balance of power mean geopolitical risks will remain prevalent in the long term.
“These risks have the potential to cause significant economic and political instability, though are not currently a direct ratings driver for sovereigns in the region,” it said in a note.
The rating house noted that the diminishing US geopolitical influence in Asia in the past decade, concurrent with China’s efforts to expand its presence here, were fundamentally changing the region’s security paradigm.
It said the changing geopolitical dynamics was likely to result in recurring frictions among states.
The research house cited recent territorial disputes involving China, Philippines and Vietnam in the South China Sea as a case in point.
It added that other longstanding issues, including from North Korea, territorial disputes over uninhabited islands in the East China Sea between Japan and China, and cross-strait relations between Taiwan and the mainland remain had the potential to flare up.
“In the case of Korea, North Korea-related issues have been a longstanding risk factor that has weighed on South Korea’s credit profile,” it noted.
It added that terrorism and related security risks were also likely to remain pertinent for the region.
Major-and repeated- terrorist attacks have the potential to affect important drivers of economic growth including tourism or sectors that rely heavily on foreign investment, it said.
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