Ann: Becoming a substantial holder-ASB.AX, page-3

It's time to hold gun, gold and medicine. ASB is going to be top favorite. IMO

Rising tensions in the South China Sea over territorial rights have yet to unnerve markets, but at least one investment bank has the answer if things do get hotter.

Called the "Asian Arms Race" equity basket, it has been dusted off by Nomura in recent days as a hedge against a step-up in hostilities between China and Taiwan, China and the Philippines and, ultimately, China and the United States.

Between its launch in August 2013 and about a week ago, the stock selection - covering defence components and electronics, shipbuilding, aviation, weaponry and explosives - returned 24 per cent in US dollar terms.

This performance leaves the MSCI Asia-Pacific benchmark, which was down 6 per cent at the comparison point, in its dust.

To dismiss the basket as a bundle of bellicosity is to make light of what could become an important global flashpoint. Historic tensions between China and Taiwan over sovereign recognition have escalated of late as the former seeks to consolidate its claims over large tracts of the South China Sea.

At the same time, an international court ruling in favour of the Philippines against Chinese maritime expansionism this week looks likely to be ignored by Beijing, a gesture which would not sit well in Washington.

Australia, with its tight trade relationship with China and deep historic and military ties with the United States, could find itself compromised in a difficult diplomatic dance.

Nonetheless, or perhaps because of this, Australian shipbuilder Austal is among the 13 "key prospective listed beneficiaries of Asia-Pacific defence spending", according to Nomura's criteria.

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Between its launch and last week, Nomura's defence basket had returned 24 per cent in US dollar terms. Photo: Nomura, Bloomberg