According to Thomas Mucha, Geopolitical Strategist, power competition between the world’s largest and most influential nations will equate to greater geopolitical risk. Countries throughout the region are joining various alliances and economic pacts designed to bolster national security and shore up supply chains that were severely disrupted during COVID-19 lockdowns.
In the Asia-Pacific, two camps are emerging: those siding with the US, and those aligning with China. The reintroduction of the Quadrilateral Security Dialogue between the US, Japan, Australia and India, and the recently established AUKUS alliance between the UK, US and Australia emphasise the importance the US places on the region. Conversely, China’s slew of deals as part of Belt and Road Initiative underscores the nation’s regional and global ambitions. “Expect more coordination, and a deepening use of US-led alliances and security formats to attempt to moderate Chinese military actions in the Indo-Pacific”, says Mucha.
Both sides are focusing on the development of strategic industries that are on the front line of both military and economic advancement. These include semiconductors, next generation communications, robotics, artificial intelligence and quantum computing. They also include biotechnology, space technologies and rare earth minerals. Defense spending across the region is on the rise, having increased by 2.8% during 2021.1 Some countries have upped their defense budgets by more than double this number. Mucha expects regional defense spending to grow further in the coming years.
“The investment focus will shift to these dual-use technologies, and our concepts of what constitutes a defense stock will change accordingly”, says Mucha.