This article first appeared in Forum, The Edge Malaysia Weekly on March 21, 2022 - March 27, 2022

In the film The Godfather, Coda: The Death of Michael Corleone, gangster Michael Corleone advises his successor Vincent Mancini, “Never hate your enemy, it clouds your judgement”. My worst decisions, including in investments, were made when I made hasty or emotional judgements. That is why we need to look at the impact of war on investments.

Context and self-reflection are everything in decision-making. You cannot understand the present nor predict the future without understanding the past or yourself. Western perspectives claim objectivity, forgetting that the observer is never independent of the observed, and that the context changes dynamically as the present unfolds.

History tells stories that justify the present. Current history is mostly Euro-centric, but increasingly we need to re-orient towards a global history perspective. Ukraine is fascinating as a focal point from which a global narrative can be woven.

The Ukrainian war shattered the myth that Europe enjoyed civilised peace. In the last 600 years, the continent has seen more wars than peace throughout her rise in power. In that period, Ukraine was fought over by the Lithuanian-Polish Commonwealth, the Austrian-Hungarian empire, Ottoman Empire and Russian Tsardom, involving at different times Prussia, Sweden, France and Great Britain. In more recent history, France, Germany and Russia fought the bloodiest of battles through and around Ukraine. Ukraine is strategic because she holds the keys of access to the Northern Baltic ports and the Southern Black Sea ports (Crimea), with steppes that provide grain west to Europe and east to Russia.

Both Russians and Ukrainians have narratives that defend their side of legitimacy. The ancient city of Kiev (Kyiv) and the Slavic people play a key role in both narratives. The Russians claim that the Russian empire originated in Kyivan-Rus, centred around Kiev as the mother of Russian cities. The Slavic people came to Europe from the east, settling in Eastern Europe roughly from the seventh to third millennia BC, but they were subject to different waves of invasions from the Vikings, Khazars and Huns. In 862 AD, an originally Viking King Rurik became ruler of Novogorod and his son Oleg conquered Kiev in 882 AD. By the 10th and 11th centuries, the terms “Rus” and “Slav” had become interchangeable in meaning.

Kievan-Rus fell to the Mongols between 1237 and 1240, but the Grand Duchy of Moscow rose in power, adopted Orthodox Christianity and, under Ivan the Great (1440-1505), threw out the Eastern Hordes. After the fall of Constantinople in 1473, Russia claimed succession to the Eastern Roman Empire, which is why the Byzantine double-headed eagle is on the coat of arms of Russia.

Put in global context, China and India had populations of 103 million and 110 million in 1500 AD, accounting for 24.9% and 24.4% of world GDP respectively. By comparison, the whole of Europe had 88 million and 20.9% of world GDP, of which the former Soviet Union states today had a population of only 17 million and 3.4% of world GDP. In strategic terms, the shock loss of Europe’s access to trade with China/India after the fall of Constantinople drove the Portuguese and Spanish to seek maritime paths to the East, leading to the discovery of America in 1492 and the beginning of Western colonisation in Africa and Asia. 1492, therefore, was the game-changer year.

In the following century, Ivan the Terrible (1530-1584) began the conquest of Siberia. Romanov Tsar Michael I (1596-1645) extended his empire to the Pacific Ocean, even as the Western European powers were occupied by the bloody Thirty Years War (1618-1648). This was a religious power struggle between the Protestant states of Scandinavia, Holland, Prussia and Britain versus the Catholic kingdoms of France, Spain and Austria/Hungary.

On the other side of the world, the American colonies were still weak, the Indian Mughal empire (1526-1857) was peaking under Akbar the Great (1532-1605) and the Chinese Ming Dynasty had fallen to the Manchu conquest by 1644.

The year 1648 witnessed the historic Treaty of Westphalia, which basically settled the existing global order of sovereign states being allowed to determine their own internal, including religious, affairs. In Ukraine, the Cossacks and Tatars revolted against their Polish/Lithuanian rulers. In 1654, under attack from the Ottomans and the Poles, the Cossack leader Bohdan Khmelnytsky swore allegiance to Tsar Alexis of Russia (1629-1676), who then fought Poland and then Sweden to defend the newly acquired territory.

Alexis’s son, Peter the Great (1672-1725) modernised Russia, reforming the kingdom with Western science and industry. By 1721, the Russian empire was the third largest empire in history, only smaller than the British and Mongol empires. It functioned as an absolute monarchy and never had a democratic tradition.

World empires began to consolidate in 1722. Canada ceded Illinois to Louisiana, owned by France, while Spain controlled Florida, Mexico and large parts of Latin America. In India, the Nizam of Hyderabad started a major breakaway from the Mughal empire, giving Britain the opportunity through the Battle of Plassey (1757) to consolidate her control of India. In China, the great Qing Emperor Kangxi (1654-1722) died, having annexed north of the Amur River, Outer Mongolia and Tibet.

After the French and American Revolutions in the late 1770s, Napoleon Bonaparte conquered most of Europe, incorporating Spain into the First French Empire that by 1812 had possessed large parts of North America and Latin America. His infamous March to Moscow in 1812 ended in his defeat after the Russians adopted scorched earth policies. The same formula worked to repel the massive German invasions during World War II. The Russians, therefore, have never forgotten that they have been invaded twice by European powers.

By 1822, the Five Great European Powers — Austria-Hungary, France, Prussia, Great Britain and Russia — had turned their rivalry towards global colonisation. The Second French Empire expanded into Africa, Indo-China and the Pacific islands. The Germans followed suit. By 1841, China had lost her first Opium War to Britain and the Ottoman Empire had lost Syria and Egypt effectively to British and other European interests. After the Second Opium War, China signed the humiliating 1858 Treaty of Tientsin (Tianjin) with Britain, France, Russia and the US, the last having opened up Japan in 1852-54 using gunboat diplomacy.

By this time, America had risen in power by acquiring Louisiana from the French and Florida, Texas and California from the Mexicans. Later, it bought Alaska from Russia in 1867. After the 1861-65 Civil War, America industrialised, attracted European immigrants and capital, and became a world power to rival even the British empire in terms of GDP.

Although the Russian empire was rich with resources and manpower, it never developed a broad-based middle-class industry, spending more time battling with its neighbours. Russia’s war losses and mutiny in World War I resulted in the collapse of the Romanov Dynasty in 1917. The succeeding Bolshevik government signed the Brest-Litovsk peace treaty with Germany in March 1918, withdrawing from World War I, only for Germany to collapse by November.

Germany, therefore, had a hand through the 1918 Brest-Litovsk Treaty in creating the modern states of Estonia, Latvia, Lithuania, Poland, Belarus and Ukraine. This caused Russia to lose 34% of her population, 54% of industrial land, 89% of coalfields and 26% of its railways. Regaining this became part of the Russian angst.

World War I saw the collapse of four empires: Tsarist Russia, Imperial Germany, Imperial China and the Ottoman Empire. In 1922, the Bolsheviks recreated the Russian empire by establishing the Union of Soviet Socialist Republics (USSR) that included Armenia, Azerbaijan, Belarus, Georgia and Ukraine. Ukraine tasted independence briefly between 1918 and 1922. In China, the Republican period saw power split between regional warlords, the Nationalist Party and the Communist Party of China, which was also founded in 1922. That year marked the collapse of the 623-year-old Ottoman sultanate, out of which modern Turkey was born. In the next century, the West fought over the oil resources of the former Ottoman Middle East, exploiting the rivalry between the Sunnis and the Shias.

Germany fought World War II because she was humiliated by the punitive war reparations from World War I, enabling the Nazis to gain power. Both Germany and Japan, as rising powers, were threatened by their limited access to oil, as the British navy controlled the Atlantic and the US navy controlled the Pacific. As a latecomer to imperialism, Japan annexed Taiwan in 1895, Korea in 1910 and entered Siberia in 1918 (temporarily occupying Vladivostok) and Manchuria in 1931. Soviet Marshal Zhukov, famous for fighting the Germans, actually made his name by beating the Japanese in the Soviet-Japanese border conflicts of 1938/39, thus securing the Russian eastern front.

Russia survived the German onslaught and marched to the gates of Berlin in 1945. The 1945 Yalta and Potsdam Conferences basically determined the borders of Europe on the basis of who militarily occupied what territory. This shaped the map of post-war Europe until the collapse of the Soviet Union in 1991, with Nato allies in Western Europe balanced by the Soviet-led Warsaw Pact. When the Chinese Communist Party defeated the Nationalists in 1949, with the latter retreating to Taiwan, the world was divided ideologically between the Communists and the liberal order led by the West.

Thus, today’s war has everything to do with borders between great powers, especially with Russia feeling more and more insecure from losing more and more territory to Nato since the USSR collapsed in 1991.

In a sense, the recent UN resolution on Ukraine showed a rough outline of future power alignments. Historian Adam Tooze noted that at the UN vote condemning Russia’s invasion of Ukraine on March 2, 141 countries voted in favour, 4 against and 35 abstained. In terms of population of UN member votes, however, only 42% voted for condemnation, but governments representing 51% of the world’s population abstained, notably India, China and South Africa.

What this tells us is that the world is not fully decided on who is right or wrong in the current war and that people are still undecided what is the best way forward.

There is little doubt that the war was a wake-up call on everything. Henceforth, we need to pay attention to security in food, energy, medical supplies and key materials. Inflation has risen far faster than nominal interest rates, as supply chains are disrupted by sanctions and logistical bottlenecks. These disruptions will continue as long as no peace is negotiated. On top of being a major supplier of energy and wheat, Russia controls 50% of the supply of neon that is used in global semiconductor production.

Last Monday’s collapse of Chinese ADR (American Depositary Receipt) shares listed in New York can be read as part of the current global emotional fallout. The fog of war is still unfolding, so we cannot yet see clear patterns to help us in our investment decisions. Watch this space.

Tan Sri Andrew Sheng writes on global issues that affect investors 

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