Forget Brussels – the trade bloc to watch is in Shanghai

The Shanghai Cooperation Organisation could rival the West

There’s been a lot of weeping and gnashing of teeth in Brussels this month. The EU election results are in, the people have spoken and they’re angry as hell!

We know all about Nigel Farage, of course, but Eurosceptic parties have topped the polls all across Europe. For the first time ever, people in Europe are starting to ask whether the EU is even worth it.

It’s an old debate here in Britain. We’re well used to Eurosceptic MPs, and party divisions, and the rest of it. Now, everyone’s at it!

But the thing is, while we’re busy navel gazing about our European trade bloc, we’re missing the bigger picture. Nobody seems to have noticed a giant new trade bloc taking shape in the Far East with ambitions to cover the entire continent of Asia.

This new trade bloc is likely to be four times the size of all the West put together, and it could even stretch into the continent of Europe itself, to the border of Greece.

Well, have you heard anything about this?

I think it’s about time we took a bit of notice.

The biggest trade bloc you’ve never heard of

The trading bloc I’m talking about is The Shanghai Cooperation Organisation (SCO).

It’s made up of China – which is the second-largest trading nation in the world – with Russia and four former Soviet states.

More interesting than those members, are some others – Afghanistan, India, Iran, Mongolia and Pakistan – who were given observer status in 2010. The idea is that full membership might be offered to these countries in due course.

Closer to home, Turkey is one of the organisation’s ‘dialogue partners’ – meaning it apparently shares the bloc’s vision and wants to establish partnerships of mutual benefit.

And given the EU’s standoffish stance towards Turkey, I would not be surprised to see Turkey align itself with the East rather than the West.

Turkey’s not alone there, either. Other nations might decide that their future lies on the other side of the globe.

I can think of three very good reasons why Turkey and others might want to look east. As investors, we would all do well to consider them closely – so I’ve laid them out below.


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Three reasons to back this bloc

First off, the SCO is very much a bloc based upon business.

In contrast, the EU increasingly resembles a bloc built upon welfare and political ambitions. The difference is stark. China and Russia emerged out of Marxism. Western ideals, based on Keynesianism and social dogma, don’t interest the emerging East.

For better or for worse, they’re clearly focused on trade and the vast political and strategic benefits it brings.

Second, and possibly most interestingly, the East is seeking a bigger share of global political influence.

It wants more seats at the table. Given that the international trade and welfare agencies are Western-focused, the emerging powers don’t feel like they are getting their fair dues.

I’m talking about all the UN institutions and the political/financial unions created following the second world war. Since then, the vast majority of power rests with the US and its allies.

America doesn’t want to let go, so the emerging East is looking to create their own supra-national institutions.

The last of these three reasons to back the SCO bloc: put simply, Asia could do with a few heads banged together.

Remember the background of the EU. It was forged to promote trade and keep the peace within Europe, and it’s worked – member states no longer harbour deep grudges about land borders, nor wish to reawaken old cultural conflicts. EU membership has even helped quell underlying tensions on the periphery.

The same cannot be said in vast swathes of Asia. Today, there remain significant obstacles to peace. Borders disputes and what you might call ‘cultural gaps’ persist.

This gives a very plausible reason to grow the SCO. It’s about banging heads together.

“Align with us, and we can secure all of our interests… even where they clash with those of the mighty West!”

For these three reasons, the SCO is worth keeping an eye on. Changes are coming…

The West’s days are numbered

Here at The Right Side, I’ve long harboured doubts about the longevity of the Western way – I think the West’s success is built on shaky, debt-soaked foundations.

Meanwhile, we’re seeing absolutely mind-blowing growth in the East. How long will the West be on top?

Bear in mind that the SCO is looking to enlarge its impact beyond China. Cross border deals are growing – especially in trades excluding the US dollar. This could lead to the USA having less global influence than it currently enjoys.

Nations of the East are increasing military capacity, too – ironically, often through deals with Western companies.

And yet, the West sits back and takes it easy. Why? I’ve often heard it said that the US holds all the trumps. That the likes of China hold far too many dollar reserves to ever want to rock the boat.

What tosh. China’s dollar reserves resemble a school child’s savings. Yes, it may be important to them right now, but in the grand scheme of things, no.

As China comes of age, it’ll soon have its own earnings capacity. In short course, it’ll be out-earning mum and dad – quite possibly in a brand new currency to boot.

So the seat of global power might be shifting east. Interesting enough – but one big question remains…

How do you play it?

I’d say there are three ways to play this story.

First, increase your exposure to emerging markets.

Second, hold personal gold reserves, even as Western central bankers dump.

Third and finally, gain exposure to key commodities that continue to drive prosperity in the Eastern markets.

This article is taken from our FREE daily investment email The Right Side.
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Information in The Right Side is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. The Right Side is an unregulated product published by Fleet Street Publications Ltd. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234. http://www.fsa.gov.uk/register/home.do

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