Indian stocks, bonds and exchanges are three times killed! South Asia's risks suddenly increase, Pakistan counters

Source: China Securities Journal

The risks in South Asia have suddenly increased!

In the afternoon, there was a triple sell-off in India's stocks, bonds, and foreign exchange. The Bombay Stock Exchange index in India plunged sharply after opening, and the decline quickly expanded to more than 1%. The yield on India's 10-year government bonds also rose by 5 basis points to 6.37%, and the Indian rupee fell by up to 0.5% against the US dollar to 85.66 at one point. The slump in Indian asset prices may be related to the dispute between India and Pakistan.

On Thursday local time, Pakistan closed its airspace to Air India and refused New Delhi's request to suspend an important water-sharing treaty as retaliation for India's response to the attack on tourists by Islamic extremists in Indian-administered Kashmir. The tit-for-tat statements between the two countries have pushed the relations between these two nuclear-armed neighbors to their lowest level in years. The two countries have already fought three wars.

According to a report by Sky News on the 25th, Pakistani Defense Minister Asif, in an interview on the media program, said that Pakistan will make an "equivalent counterattack" against any attack by India. He also warned that the shooting incident in Indian-administered Kashmir could lead to a "full-scale war" between the two countries.

Pakistan's Countermeasures

According to a report by Xinhua News Agency, the Office of the Pakistani Prime Minister issued a statement on the 24th, saying that a series of measures announced by India against Pakistan regarding the tourist shooting incident are extremely irresponsible and lack legal basis, and Pakistan will take a series of countermeasures against India.

The statement from the Office of the Pakistani Prime Minister said that Prime Minister Shehbaz chaired a meeting of the National Security Council on the same day. The Pakistani National Security Council expressed its concern about the loss of tourists' lives in the incident and stated that Pakistan firmly condemns all forms of terrorism. India's attempt to link the incident to Pakistan without any reliable investigation and verifiable evidence is "reckless, irrational and illogical."

The statement said that the Pakistani National Security Council decided to close the Wagah border crossing, revoke some visas issued to Indian citizens, declare the military attaché of the Indian High Commission in Pakistan as a "persona non grata," close the airspace to Air India, and suspend all trade with India.

The Pakistani Foreign Minister said that if India withdraws the security measures against the Pakistani High Commission in India, Pakistan will also take the same measures in Pakistan; Pakistan does not rely on any country and has the ability to independently deal with all challenges, but will also communicate with all friendly countries through diplomatic means; if India cuts off the water source of the river, we will regard this as an act of war and will respond.

Pakistani Defense Minister Asif said that Pakistan will respond according to India's actions, and the counterattack will be measured. "If there is a full-scale attack or something similar, then obviously a full-scale war will break out." When asked whether the world should be worried about a "full-scale war" between India and Pakistan, Asif replied, "Yes, I think so. A conflict between two 'nuclear-armed countries' is always a cause for concern..." Asif also warned that if the situation deteriorates, this confrontation could lead to tragic consequences.

What Happened?

According to Indian media reports, a shooting incident targeting tourists occurred in Indian-administered Kashmir on the 22nd, resulting in the death of at least 25 people and several people being injured. India determined that Pakistan was involved in the attack and announced a series of measures against Pakistan on the 23rd, including suspending an important water distribution treaty between the two countries, closing the border crossing, and expelling Pakistani personnel. According to Indian media reports, the Indian Ministry of External Affairs said on the 24th that it would suspend the issuance of all types of visas to Pakistani citizens starting from the same day and advised Indian citizens not to travel to Pakistan.

The Indian police issued a notice listing three suspects, two of whom are Pakistani. However, the New Delhi side did not provide any evidence to prove the connection between them and did not disclose more details.

The Office of the Pakistani Prime Minister said in a statement that Islamabad will also exercise the right to suspend all bilateral agreements with India, including the Simla Agreement of 1972, until New Delhi stops "inciting terrorism within Pakistan." The Simla Agreement was signed after the third war between the two countries, and the agreement stipulates the principles for managing bilateral relations, including respect for the ceasefire line in Kashmir.

The Muslim-majority Kashmir region has always been at the core of the animosity between India and Pakistan. Both sides claim sovereignty over the region but only partially control it. The Kashmir region was the cause of two of the three wars between India and Pakistan and has also witnessed bloody rebellions against Indian rule. Since the outbreak of the uprising in 1989, tens of thousands of people have lost their lives in the Kashmir region, but in recent years, the situation has gradually subsided, and the tourism industry in the region has thrived.

Analysts believe that if the situation remains severe, the Indian economy may be affected to a certain extent. India originally had a relatively large advantage in terms of industrial chain承接 (it seems "undertaking" might be a better word here), but due to the shadow of war, the confidence of foreign investors in investing in India will also be impacted. Coupled with military spending, it will also consume India's financial resources. In addition, with the security on the border being affected, its logistics costs are bound to increase significantly, and its foreign trade is likely to be hit.

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