China Warns United States to Mind Its Own Business

During a conference on Friday in Bali, Indonesia, Chinese Premier Wen Jiabao warned that "external forces" should stay out of maritime disputes between countries with territorial claims in the South China Sea. Although the United States wasn't mentioned by name, there could be little doubt that Premier Wen's remarks were aimed at directly at America. Earlier in the week, the United States announced increased military cooperation with Australia, including the stationing of United States Marines in Australia. The agreement between the United States and Australia comes at a time of increasing maritime tensions between China and most other countries in the South China Sea region. Portions of the South China Sea are being disputed between China, Taiwan, Vietnam, the Philippines, Malaysia, and Brunei. China prefers to negotiate over the disputed areas in one-on-one dealings with its neighbors but they would rather to deal with China as a group and some of these countries are even seeking closer ties with the United States in a hedge against increasing Chinese naval strength. Investors who feel that the veiled warning from Chinese Premier Wen Jiabao and the United States' decision to station Marines in Australia point toward increasing tensions in South East Asia have a few investment options to consider. If tensions rise as China continues to build its naval forces, the likelihood of conflict breaking out in Southeast Asia will increase. Even though the chances of an actual conflict breaking out should remain remote, the markets would be rattled by more provocative talk from China or an increased American presence in China's neighborhood. In such a scenario, ETFs like the ProShares Ultrashort FTSE China 25

and ProShares UltraShort S&P 500

the could climb higher. Although few believe that China and America are even close to becoming allies, the two countries' economies are so interdependent that both would suffer terribly in the event of a conflict. Other Investors might feel that the governments of the United States and China know very well that in any conflict between the two, both would have more to lose than gain. Investors who feel this way might want to buy ETFs like iShares FTSE China 25 Index Fund

and iShares MSCI Taiwan Index Fund

or stocks like United Microelectronics

, PT Indosat

and Sinopec Shanghai Petrochemical

on any dips related to increased tensions in the area. China and most of its southeast Asian neighbors are experiencing growth rates that most Western economies could only dream of and are wary of letting territorial disputes threaten economic growth.