The long term cost to the global economy of China and Russia's latest joint venture is being assessed in trading rooms across London this morning. The two nations have announced plans to build a permanent base on the Moon, a project that will require substantial capital inflows diverted from other potential investments. For market participants, the announcement raises immediate questions about fiscal discipline and the potential for further capital flight from emerging markets.

From a purely financial perspective, the lunar base is a high risk, low liquidity asset. The initial investment is estimated to be in the tens of billions of dollars, with no clear return on investment. This is the sort of project that would make any CFO wince. The timing is particularly alarming given the current inflationary pressures and tightening monetary policy in both China and Russia. A project of this magnitude risks crowding out private sector investment and increasing the fiscal deficit.

The market's initial reaction has been muted, but I suspect that is because the full scale of the commitment is not yet understood. The base is scheduled to be operational by 2031, which gives plenty of time for costs to spiral. In my experience, joint ventures between state owned enterprises rarely manage to stay within budget. The governance structure is likely to be opaque, making it difficult for investors to assess the true exposure.

There is also a geopolitical dimension. The lunar base is a clear signal that China and Russia are increasing their cooperation in strategic areas. This will inevitably be viewed by Western governments as a threat, leading to potential restrictions on technology transfer and even sanctions. For multinational corporations with exposure to both markets, this creates an additional layer of risk. The cost of capital for any project involving these nations is likely to increase.

The broader market implications are more concerning. The announcement comes at a time when global debt levels are at all time highs and central banks are struggling to contain inflation. A significant increase in government spending by China and Russia could lead to higher bond yields and a flight to safe havens. The US dollar and gold have already seen increased demand in early trading.

For investors, the key question is whether this is a rational allocation of resources. The answer, from a fiscal perspective, is almost certainly no. The moon base is a prestige project that offers no immediate economic return. In a world where capital is scarce, such projects are a luxury that few can afford. The prudent approach would be to reduce exposure to Chinese and Russian assets until the full financial implications are known.

In summary, while the technological achievement is impressive, the financial foundation is shaky. Markets abhor uncertainty and this announcement adds a significant layer of it. For the sake of the global economy, one hopes that there is a more detailed business case than what has been presented. Until then, I remain skeptical.