What rising tensions in Asia mean for investors

China is asserting its territorial claims increasingly aggressively, angering its neighbours. Meanwhile Thailand is in turmoil. Is political risk rising in Asia? Matthew Partridge reports.

What's happening in Vietnam?

As Forbes' Donald Kirk puts it, the disturbances seem to be "giving voice to a long litany of complaints against all those whom the Vietnamese see as exploiting them".

The Chinese government has already had to evacuate 4,000 citizens from the country, and one company Metallurgical Corp of China has confirmed that four of its staff were killed.

Hanoi is attempting to restore order and has promised compensation, through loans, debt forgiveness and tax cuts. Despite this, Vietnam's stock market has plunged, as foreign investors rush for the exit it is down by more than 10% from its March highs.

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Is this dispute solely about Vietnam?

Indeed, in February, Philippine president Benigno Aquino compared China's expansionist policies to those of Germany in the 1930s. Beijing's aggressive behaviour has also led other countries (most notably Japan) to increase military spending, prompting fears of an arms race. They have also attempted to form informal anti-Chinese alliances.

In response to this, on Tuesday, Chinese president Xi Jinping stated that Beijing is "committed to seeking peaceful settlement of disputes with other countries". However, he warned that China would treat any new regional alliances as a threat to its security.

What role is the US playing?

This involves supporting regional bodies, building closer relations and economic links with other Asian countries, including the Trans-Pacific Partnership (a trade deal). However, it also involves supporting other countries in their disputes with China.

For instance, in April, President Obama reaffirmed Japanese ownership of the Senkaku Islands (which China claims). He also said that they fall under the longstanding US-Japan Mutual Security Treaty, implying that the US would use force to resist any unilateral attempt by China to seize them.

America also this week indicted five Chinese officials for alleged computer hacking the most aggressive overt reaction yet in the low-level rumbling cyberwar between the two countries.

China has responded by strengthening its ties with countries that are seen as opposed to the US. For example, this week China and Russia finally signed off on a long-planned 30-year deal for Russia to supply gas to China by pipeline from Siberia.

Why does this matter?

Clearly, uncertainty over China's growth prospects will not help promote political stability. But it's not just China the risks from political unrest can be seen clearly in the case of Thailand, which saw its economy contract by 0.6% in the first quarter of the year amid political turmoil.

However, although Thai stocks have fallen on news of the military involvement, the overall stock index is still up 10% from its level at the start of this year, so investors are yet to take a full hit.

Is there any positive political news?

As The Economist notes, Modi's political party has a reputation for anti-Muslim and nationalist policies. Meanwhile, a recent research note from Societe Generale points out that the experience of other emerging countries suggests that stockmarkets tend to do badly after the election of political reformers, due to the short-term costs involved.

Is the world getting safer?

High-intensity conflicts have fallen from 16 in 1986 to six in 2011. Similarly, the number of deaths from such conflicts fell from around 80,000 in 2000 to under 20,000 in 2011. They argue that the most convincing explanation is rising national incomes, which are "the strongest determinants of reduced risks of civil wars".

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri