Return to Homepage
Image

Mission Grey Daily Brief - September 11, 2024

Summary of the Global Situation for Businesses and Investors

The global situation remains dynamic, with ongoing geopolitical tensions and economic shifts. Russia's efforts to influence the US elections and its partnership with China in opposition to the Western-led order are key concerns. Libya's political instability and Bangladesh's energy crisis also have regional implications. The EU's joint debt plans and Apple's tax dispute with Ireland are other notable developments.

Russia's Election Interference and China-Russia Alignment

Russia's attempts to sway the 2024 US presidential election in favor of former President Donald Trump have been exposed, leading to sanctions and criminal charges. Meanwhile, China and Russia have announced joint naval and air drills, underscoring their growing alignment against Western-led democratic values. This poses risks to businesses, particularly in the face of potential US retaliation and escalating tensions with the US-led military bloc, NATO.

Risks and Opportunities

  • Risk: Businesses with close ties to Russia or China may face backlash and sanctions from Western countries, especially if associated with supporting authoritarian regimes.
  • Opportunity: Companies can promote their commitment to democratic values and transparency, enhancing their reputation and attracting investors who prioritize ethical practices.

Libya's Political Instability and Reconstruction

Libya continues to face political instability, with military strongman Khalifa Haftar gaining influence through reconstruction efforts in flood-ravaged Derna. The lack of oversight from the internationally recognized government in Tripoli has led to concerns about corruption and political launchpads for Haftar's family.

Risks and Opportunities

  • Risk: Political instability and the influence of military figures in Libya may deter foreign investment, especially in infrastructure projects.
  • Opportunity: There are potential opportunities for companies in the construction and engineering sectors, but due diligence is essential to avoid associations with corrupt practices.

Bangladesh's Energy Crisis and Debt

Bangladesh is facing an energy crisis, with a $3.7 billion power-related debt, including $800 million owed to Adani Power. The interim government, led by Nobel laureate Muhammad Yunus, is seeking financial aid from international bodies like the World Bank. Adani has warned of an "unsustainable" situation, but remains committed to supplying power to Bangladesh.

Risks and Opportunities

  • Risk: Businesses operating in Bangladesh may face disruptions due to the country's energy crisis and financial instability. This could impact production and supply chains.
  • Opportunity: Companies in the energy sector may find opportunities to provide solutions and infrastructure improvements, but should carefully assess the country's financial situation and payment risks.

EU Joint Debt Plans and Apple's Tax Dispute

Mario Draghi, a former head of the European Central Bank, has called for the EU to continue issuing joint debt to finance key investments, but this proposal has faced criticism from fiscally conservative countries like Germany and the Netherlands. Meanwhile, the EU ordered Apple to pay $14 billion in unpaid taxes to Ireland, marking a victory against big tech companies' tax arrangements.

Risks and Opportunities

  • Risk: Businesses operating in the EU may face changing fiscal policies and potential tax reforms, impacting their financial strategies and profitability.
  • Opportunity: Companies can benefit from EU grants and loans offered through the NextGenerationEU program to make critical investments and drive innovation.

Further Reading:

'Unsustainable situation...': Adani Group warns Bangladesh of unpaid $500 million power debt - Business Today

A year on, politics plague rebuilding efforts in Libya’s flood ravaged Derna - FRANCE 24 English

Adani warns Bangladesh of $500 mn 'unsustainable' payment delays as energy crisis looms - The Economic Times

As Russia targets U.S. elections, Trump sees Kremlin as a victim - MSNBC

CIA and MI6 heads discuss Gaza ceasefire efforts, Russian threat in unprecedented joint public appearance in London - CNN

China announces joint naval, air drills with Russia - DW (English)

Draghi report splits German government, receives pushback from Netherlands - EURACTIV

EU orders Apple to pay $14 billion in unpaid taxes to Ireland - BGR

Themes around the World:

Flag

India-Canada Diplomatic Tensions

The recent breakdown in diplomatic relations between India and Canada over accusations of Indian government agents' involvement in murder and extortion in Canada raises concerns for bilateral trade and immigration ties. Uncertainty surrounding the future of the relationship may impact business opportunities and the movement of people between the two countries.

Flag

Geopolitical Risks and Sanctions

Geopolitical risks, particularly those associated with Russia's war in Ukraine, are a key concern for UK businesses. The UK has imposed sweeping sanctions on Russia's shadow fleet of oil tankers, targeting illicit oil exports. These sanctions are part of coordinated efforts with the US, Canada, and European nations to neutralize the threat posed by the shadow fleet to international trade and maritime safety.

Flag

Climate Change and Energy Transition

Thailand is exploring ways to transition to cleaner energy sources, such as hydrogen co-firing technology, with the goal of becoming carbon neutral by 2050 and achieving net-zero emissions by 2065. The country is also implementing a taxonomy system to classify economic activities based on their environmental sustainability, with a focus on the energy, transportation, construction, and agriculture sectors, which contribute significantly to GHG emissions.

Flag

Interest Rate Hikes

The Bank of Japan (BOJ) has signaled its intention to raise interest rates, moving away from a decade of unorthodox monetary easing. This is due to decreasing risks from overseas economies, particularly the US, and the emergence of inflation. However, the complicated political situation and the upcoming US presidential election may influence the timing of these rate hikes.

Flag

Geoeconomic Fragmentation Impact

Geoeconomic fragmentation is altering trade patterns and financial vulnerabilities in the ASEAN+3 and euro area regions. Thailand, as part of ASEAN, has positioned itself as a regional "connector", benefiting from changing global dynamics and enhancing its export advantages. This has particularly impacted China's export activities and increased financial exposure for the euro area.

Flag

US Tariffs and Trade Wars

US firms face economic turbulence due to tariffs and potential trade wars with China. This impacts industries like manufacturing and apparel, causing uncertainty and higher costs, affecting investment plans and supply chains.

Flag

Sanofi-Opella Sale to US Firm

The French government has approved the sale of a controlling stake in Sanofi's consumer healthcare arm, Opella, to a US private equity firm, CD&R, for €16 billion. This deal has sparked controversy due to concerns about potential job losses and the loss of control to a foreign company. However, the French government has negotiated sanctions and guarantees to ensure production and jobs remain in France, with Opella facing penalties of over €100 million if it fails to uphold these commitments.

Flag

Taiwan Conflict

China's military drills around the Taiwan Strait and potential conflict with Taiwan have raised concerns about the impact on global trade and supply chains. A clash between China and Taiwan could result in significant economic damage, with foreign investors exiting the Chinese market and disrupting commercial ship traffic.

Flag

Semiconductor Industry Opportunities

Japan has emerged as a pivotal player in the global semiconductor industry, with the government allocating 2 trillion yen to bolster the industry. The country's close ties with the US and affinities with Taiwan and South Korea position it well in the midst of US-China tensions. This presents opportunities for investors and businesses in the semiconductor space.

Flag

US-China Relations

The US has imposed sanctions on Chinese entities for their role in supplying Russia with weapons technology, but China denies providing weapons and claims to handle exports in accordance with laws. Growing trade ties between China and Russia indicate their efforts to circumvent sanctions, and the US is responding with further sanctions and other tools.

Flag

Gambling Legalization

The Thai government is considering legalizing casinos by integrating them into entertainment complexes to boost tourism and revenue. While this could have economic benefits, critics warn of potential social issues and gambling addiction in the Buddhist-majority country, especially without stringent regulations in place.

Flag

Drone Technology

The UK has authorized the use of drones to monitor critical energy infrastructures, offering significant benefits in terms of operational efficiency, cost reduction, and safety improvements. This technology enhances the reliability of renewable energy infrastructures and accelerates the development of new wind farms.

Flag

Intellectual Property Theft

China has been accused of intellectual property theft, estimated at $600 billion annually from the US alone. This has contributed to China's economic dominance and exploitation of global markets, often disregarding human rights and property protections.

Flag

Economic Stimulus Measures

China has announced fiscal stimulus measures to support its economy, including cutting lending rates, lowering cash reserve requirements, and providing liquidity to the stock market. However, there are concerns that these measures may not be enough to boost consumer confidence and address the property market crisis, with some calling for more direct aid to consumers.

Flag

Challenges in Traditional Industries

Japan's traditional industries, such as bookshops, are facing significant challenges. Rising costs, cashless transaction fees, and competition from e-commerce and digital alternatives are threatening their survival. The decline in reading among Japanese citizens further exacerbates these issues.

Flag

China's Africa Strategy

China's Belt and Road Initiative activities in Africa focus on infrastructure and resource extraction. Political instability in Africa poses challenges to China's investments and may force a shift from its non-interference policy. African leaders are advised to diversify economic relationships to avoid becoming victims of Chinese neocolonialism.

Flag

Political Instability

France's political landscape is precarious, with President Macron's gamble on new elections leaving Prime Minister Barnier's government without a majority in parliament. The leftist NFP alliance and the far-right National Rally could join forces to bring down the government, causing potential rudderlessness until at least July 2025.

Flag

Consumer Confidence Crisis

China is struggling to boost consumer confidence, which has been impacted by COVID-19 lockdowns and economic woes. Despite stimulus measures, consumers remain reluctant to spend, and there are concerns that China's financial system, focused on the supply side, exacerbates deflation.

Flag

Record-high deficit and debt

France's financial future is under scrutiny as credit rating agencies assess the country's ability to manage its debt. The country faces a record-high deficit of €167 billion, or 5.5% of GDP, and national debt is projected to reach 114.7% of GDP, exceeding EU limits. This has led to political turmoil and uncertainty for investors, with potential impacts on borrowing costs and the country's vulnerability to market speculation.

Flag

Geopolitical Risks

India's role in supplying restricted technology to Russia has raised concerns among Western allies. This underscores the challenges of enforcing sanctions and the potential for India to fill gaps in the global supply chain due to its position as an intermediary.

Flag

Shipping and Trade Resilience

Despite Russia's intensified attacks on Ukrainian ports and ships, shipping operations continue, demonstrating the resilience of Ukraine's seaborne trade. Companies like Maersk, Hapag-Lloyd, and HHLA remain committed to operating in the region, signaling a strong will to keep trade flowing.

Flag

Energy Transition and Infrastructure

The UK is committed to supporting the transition to electric vehicles with tax incentives and infrastructure investments. Additionally, the use of drones to monitor energy infrastructures is expected to improve operational efficiency and reduce costs in the energy sector.

Flag

Ukrainian Resilience and Morale

Ukrainian forces are heavily outnumbered and outmatched in artillery and ammunition, and there are growing signs of exhaustion, demoralization, and desertion. However, they are forcing the Russians to advance slowly and are inflicting heavy casualties, which could lead to a peace settlement limiting Russian territorial gains.

Flag

Shifting Global Order

Germany's economic model, which relied on trade with growing economies, is facing challenges due to a shifting global order. Exports to China have fallen, and German companies face competition from Chinese rivals. Additionally, German carmakers are facing pressure from Trump's trade policies, which threaten tariffs on vehicles not made in the US.

Flag

Insurance Brokerage Expansion

WTW has launched an insurance brokerage service in Japan, offering solutions to commercial clients and wholesale facultative reinsurance placement services. This expansion highlights the growing importance of independent international brokers in Japan's evolving corporate insurance market, presenting opportunities for risk management and insurance partnerships.

Flag

Impact on Luxury Brands

Chinese consumers have long been a key driver of luxury brands, but a sluggish economy and changing consumer tastes have led to a decline in luxury spending. While the Chinese government's stimulus measures have revived some interest, analysts are unsure if they will spur luxury spending among target consumers. Companies like Hermes, L'Oreal, and Coca-Cola are adjusting their China strategies due to reduced consumer spending.

Flag

Energy and Geopolitical Challenges

Germany's economy has been impacted by geopolitical tensions, including the Russia-Ukraine conflict, which has led to energy price spikes. Germany's previous strength was partly due to cheap Russian energy, which is no longer available, affecting German industries.

Flag

Structural and Cyclical Challenges

Germany's economic woes are attributed to a mix of structural and cyclical issues, including a slow transition to new industries like AI and renewable energy, bureaucratic inefficiencies, insufficient infrastructure investment, and a decline in the working population.

Flag

US-China Technology Competition

The US and China are engaged in a technology competition, particularly in the semiconductor and battery industries. China has made significant investments in battery technology and supply chains, while the US focuses on next-generation solid-state batteries. US export controls on semiconductors may push China to 'design out' US technology, impacting US company revenues and supply chains.

Flag

India's Economic Growth

The IMF maintains India's growth projection at 7% for FY25, a drop from 8.2% in 2023 due to exhausted pent-up demand. The multilateral lender expects India to grow at 7% in the current fiscal year and 6.5% in the next. The global battle against inflation is considered largely won, and a global recession has been avoided. However, downside risks dominate the outlook, including geopolitical tensions and protectionist policies.

Flag

Political Stability

India's political stability is a key factor in its attractiveness for sourcing apparel, according to the US ITC. This stability, along with vertical integration and skilled labor, has made India the fourth-largest supplier of apparel to the US, overtaking China.

Flag

US-Russia Relations

The US has added numerous entities to its trade blacklist for allegedly aiding Russia's war effort in Ukraine, restricting their access to US items and technologies. This action is part of the US's vigilance in defending national security and sending a message to malicious actors.

Flag

Russia-Ukraine Conflict

The UK has imposed sweeping sanctions on Russia's shadow fleet of oil tankers, targeting their ability to sustain war efforts through illicit exports. This is part of coordinated efforts with the US, Canada, and Europe to neutralize the threat to international trade and the environment posed by these vessels.

Flag

Industrial Strategy

The UK government's new industrial strategy aims to steer the economy through global challenges and achieve growth. It emphasizes clean energy, investment in infrastructure, and support for emerging industries. However, it lacks detail on funding, addressing Brexit's impact on trade, and supporting traditional industries.

Flag

Economic Stimulus Measures

China has announced fiscal stimulus measures to address its economic slowdown, including monetary easing, government spending, and investment incentives. However, there are doubts about their effectiveness, with some analysts predicting a potential global recession if stronger action isn't taken.

Flag

Market Volatility

Thailand's SET Index experienced slight fluctuations amid market volatility, influenced by factors such as selloffs and earnings reports. Foreign investors play a significant role in the Thai stock market, impacting liquidity, market sentiment, exchange rates, and sector-specific performance.