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Mission Grey Daily Brief - September 30, 2024

Summary of the Global Situation for Businesses and Investors

The global situation remains complex, with rising geopolitical tensions, economic shifts, and social unrest dominating the landscape. In Europe, Austria's far-right Freedom Party secured a historic win in the national election, tapping into anxieties about immigration, inflation, and the war in Ukraine. This will likely lead to significant changes in the country's relationship with the EU. In Asia, China's support for Russia's defense industry and its role in spreading pro-Beijing propaganda ahead of the US elections have raised concerns in Washington. Meanwhile, China and Brazil are pushing for a Ukraine peace plan, which has been criticized by the US and Ukraine. Azerbaijan's economic resilience and diversification efforts continue to attract foreign investment, and Indonesia's nickel boom is facing challenges due to community protests and environmental concerns. Lastly, the upcoming US elections on November 5 will be influenced by American expats in Hong Kong, with potential impacts on the White House and Congress.

Austria's Shift to the Far-Right

Austria's far-right Freedom Party (FPO) secured a narrow victory in the national election, marking a significant shift in the country's political landscape. The FPO, led by Herbert Kickl, has expressed Eurosceptic and Russia-friendly sentiments, advocating for stricter asylum policies and criticizing Islam. This win could lead to substantial changes in Austria's relationship with the European Union, particularly given Kickl's admiration for Hungarian Prime Minister Viktor Orban and his criticism of the EU. The FPO's victory is part of a broader trend of surging far-right support across Europe, including in the Netherlands, France, and Germany. This shift underscores the need for businesses and investors to closely monitor political developments in Austria and their potential impact on the country's standing within the EU.

China's Support for Russia and Propaganda Efforts

US-China tensions escalated as US Secretary of State Antony Blinken expressed strong concerns about China's support for Russia's defense industry. China has provided critical machine tools and microelectronics, enabling Russia to produce weapons and continue its aggression in Ukraine. Additionally, China, along with Brazil, is leading an effort to gather support from developing countries for a Ukraine peace plan, which has been rejected by the US and Ukraine as serving Moscow's interests. China's actions have prompted the US to consider how to disrupt the flow of critical resources to Russia and prevent further escalation. Businesses and investors should be cautious about potential spillover effects and the impact on their operations, especially in the technology and defense sectors.

Azerbaijan's Economic Resilience and Diversification

Azerbaijan's economic resilience and growth amid regional instability and resource dependency challenges have been notable. The country's 4.3% economic growth, driven by effective management of resources and diversification efforts, has attracted foreign investment. Azerbaijan's success in the non-oil sector, particularly in renewable energy sources, has enhanced its reputation in green energy production. This stability and diversification signal to investors that the country is a reliable destination for investment, even amidst geopolitical tensions. Businesses and investors should consider the potential opportunities arising from Azerbaijan's economic resilience and its focus on sustainable energy initiatives.

Indonesia's Nickel Boom and Community Protests

Indonesia already accounts for 55% of the world's nickel production, and its output is expected to grow further. However, the nickel boom has faced challenges due to community protests and environmental concerns. Local communities have protested the loss of agriculture jobs and the negative impact of the rapidly expanding nickel business on the environment. Businesses and investors in the nickel industry should closely monitor these developments and consider strategies to address community concerns and minimize environmental impacts to ensure long-term sustainability and social license to operate.

Risks and Opportunities

  • Austria's Political Shift: The far-right shift in Austria may lead to changes in the country's relationship with the EU, impacting businesses and investors, particularly in the immigration and asylum sectors.
  • China-US Tensions: Rising tensions between the US and China over Russia's war in Ukraine may result in businesses and investors facing challenges related to supply chain disruptions and technological restrictions.
  • Azerbaijan's Economic Growth: Azerbaijan's economic resilience and diversification efforts present opportunities for investors, especially in the renewable energy sector.
  • Indonesia's Nickel Boom: Businesses and investors in Indonesia's nickel industry should be mindful of community protests and environmental concerns, developing sustainable practices to maintain their license to operate.

Recommendations for Businesses and Investors

  • Monitor political developments in Austria and assess potential impacts on EU relationships, particularly regarding immigration and asylum policies.
  • Stay apprised of US-China tensions and their potential effects on supply chains and technology access, especially in the defense and technology sectors.
  • Consider investment opportunities in Azerbaijan, particularly in the renewable energy sector, as the country demonstrates economic resilience and a commitment to sustainable practices.
  • Engage with local communities and address environmental concerns in Indonesia's nickel industry to ensure long-term sustainability and social license to operate.

Further Reading:

6 killed by bomb blasts in Somalia after leader addresses UN - VOA Asia

A far-right party is looking for a historic election win in Austria - Fox News

After China meeting, Blinken says Beijing's talk of Ukraine peace 'doesn't add up' - Yahoo! Voices

American expats in Hong Kong may have the power to swing the US presidential election, for good or ill - Hong Kong Free Press

As important as Ukraine is, a Taiwan war must be Australia’s biggest worry - The Strategist

Austria faces tight election as far right seeks historic victory - The Indian Express

Austria holds tight election with far right bidding for historic win - 1470 & 100.3 WMBD

Austria votes in tight election with far right bidding for historic win By Reuters - Investing.com

Austria: First projections, the Freedom Party wins with 29,1 percent of the votes - Agenzia Nova

Azerbaijan’s economic resilience: Growth amidst challenges and vision for future - AzerNews.Az

Behind the loudest issues, the UN is a world stage for disputes that are often out of the spotlight - Newsday

Blinken says China's talk of Ukraine peace 'doesn't add up' - DW (English)

Bright Simons’ writes-Bank of Ghana sweats to impress the IMF about cedi’s woes - Citinewsroom

Cambodia - General Assembly of the United Nations General Debate

Canada GDP’s slight growth, Vancouver’s grain terminal strike and Indonesia’s nickel boom: Must-read business and investing stories - The Globe and Mail

China taps into AI to ramp up fake-news campaign amid U.S. election - Fortune

China’s top diplomat calls for Mideast ceasefire, denounces trade protectionism - South China Morning Post

Themes around the World:

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Political Uncertainty

Japan's recent parliamentary elections resulted in Prime Minister Shigeru Ishiba's ruling coalition losing its majority, creating political uncertainty. This could impact the country's market rally and business environment, which had been attracting significant investment over the past two years.

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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.

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Foreign Investment and M&As

Despite the war, Ukraine is witnessing growing foreign investment and mergers and acquisitions (M&As). In the first nine months of 2024, there were 36 M&As worth $643 million, compared to 28 deals worth $494 million in 2022. Foreign investors are attracted to sectors like innovation and technology, with six deals totaling $290 million. The largest M&A deal in a decade was the French company NJJ Capital's acquisition of two Ukrainian companies for over $600 million.

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US Semiconductor Export Controls

The Biden administration's export controls on semiconductors impact US company revenues and accelerate China's efforts to develop its own technology. This may lead to a shift in semiconductor supply chains away from US reliance, affecting US firm revenues.

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Russia Sanctions

The UK has imposed sweeping sanctions on Russia's shadow fleet of oil tankers, targeting 43 vessels to date. This action aims to curtail Russia's ability to bypass sanctions and sustain its war efforts through illicit oil exports, while also addressing environmental and trade security risks posed by the fleet.

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US Election Impact

The upcoming US presidential election is causing uncertainty for businesses, with some postponing or canceling investment plans. The election is also influencing market volatility, with Donald Trump's gains in betting markets and polls impacting equities, the dollar, and expectations for economic policies.

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Western Military Aid to Ukraine

Ukraine has received military aid, including weapons and fighter jets, from Western countries to support its defense against Russia. However, experts warn that many of these weapons may not survive the war if used to their maximum potential. The West needs to be prepared for potential losses while understanding that the support is crucial for Ukraine's victory.

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US Tariffs and Trade

US firms are bracing for potential tariffs as the election approaches, with Republican candidate Donald Trump proposing new tariffs on imports and Chinese goods. These tariffs may lead to higher prices for consumers and impact various industries. The impact of tariffs on inflation and US relations with allies is uncertain.

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Record-High Deficit and Mounting 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, projected to reach 6.1% of GDP this year, and a potential downgrade in its credit rating. The government plans to borrow €300 billion in medium- and long-term bonds next year, risking becoming the biggest borrower in the Eurozone.

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US-China Port Competition

China has rapidly expanded its port infrastructure in the Global South, raising concerns about commercial, military, and intelligence-gathering uses. US ports lag behind in number and quality, with vulnerabilities exposed by Chinese-made cranes equipped with sensors and communication devices.

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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.

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Supply Chain Resilience

Thailand is part of the Indo-Pacific Economic Framework for Prosperity (IPEF), which aims to strengthen supply chain resilience among member countries. The agreement addresses vulnerabilities and promotes diversification to mitigate the impact of disruptions, ensuring the efficient flow of goods during global crises and reducing risks associated with overdependence on certain regions.

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Western Weapons Limitations

Ukraine's Western weapons, such as F-16s and Abrams tanks, are limited in number and may not survive the war if used extensively. Ukraine needs to maximize their potential, but doing so entails significant risks, and Western partners must accept that these weapons may not return.

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Wage Hike Push and Business Concerns

Prime Minister Shigeru Ishiba's pledge to significantly raise Japan's national average wage may hurt small businesses, as they struggle to secure funds to raise salaries and retain workers, amidst rising costs due to inflation and a weak yen.

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Thailand's Energy Transition

Thailand is exploring hydrogen underground injection with Mitsubishi Power to contribute to a greener environment and enhance technology. This supports Thailand's goal of carbon neutrality by 2050 and net-zero emissions by 2065. However, underground hydrogen storage presents risks, including the possibility of explosions due to hydrogen's flammability. The project also requires costly infrastructure, and Thailand may face serious economic repercussions if it fails.

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Industrial Overcapacity and Exports

China's industrial sector is producing more output than can be sustainably absorbed, leading to a flood of cheap exports and trade tensions. This overproduction is causing global market instability and protectionist responses from other countries.

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Digital Supply Chain Security

The UK faces increased cyberattacks from state-sponsored threat actors, particularly Russia and China. These attacks target critical national infrastructure and digital supply chains, posing significant risks to the economy and national security. Securing digital supply chains is a key focus for the UK and NATO allies.

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US-Israel Relations

The US has threatened to cut military aid to Israel if it does not improve the humanitarian situation in Gaza within 30 days. This warning is a significant step up in pressure and puts US military aid in jeopardy. The US is Israel's largest supplier of arms, and any reduction in support could impact Israel's military capabilities and ongoing conflicts.

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US Semiconductor Export Controls

The Biden administration's export controls on semiconductors impact US company revenues and accelerate China's efforts to develop its own technology. This may lead to a shift in semiconductor supply chains away from US reliance, affecting US firm revenues.

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US Military Aid and Pressure

The US, Israel's major ally and biggest supplier of arms, has threatened to cut military support if Israel does not improve humanitarian aid access to Gaza within 30 days. This pressure could jeopardize US military aid to Israel, though similar threats in the past have not stopped the flow of weapons. The US has also agreed to send Israel a missile defense system to deter Iranian ballistic missile attacks.

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Semiconductor Industry Ambitions

Japan is investing heavily in its semiconductor industry, aiming to reclaim its past dominance. The government has allocated 2 trillion yen to support domestic chip firms and international partnerships, leveraging its ties with the US, Taiwan, and South Korea, amid heightened trade tensions between the US and China.

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Foreign Investment Surge

Thailand has seen a 42% year-on-year increase in investment pledges in the first three quarters of 2024, reaching $21.6 billion, with foreign investment rising by 38%. Singapore and China are the top sources of FDI, with significant contributions from the US, Australia, Hong Kong, India, and Japan.

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Zonal Energy Pricing

The UK is considering overhauling its electricity market by introducing seven market zones, each with its own price. This aims to address inefficiencies and reduce costs associated with constraint payments. However, there are concerns about potential impacts on clean energy projects and consumer bills.

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Energy Security

The UK is transitioning to low-carbon electricity sources and increasing energy imports, reducing the risk of winter blackouts. However, heavy reliance on gas and insufficient progress in insulating homes and scaling heat pumps leave the country vulnerable to energy price shocks and surging energy bills.

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Inflation and Jobs

Inflation is a key concern for US voters, with prices remaining high despite a drop in the inflation rate. The job market is strong, but long-term issues persist, impacting specific worker groups. Wages have grown faster than inflation, helping households manage rising prices. The election outcome will influence economic policies addressing these issues.

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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.

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US-Israel Relations

The US is Israel's major ally and biggest supplier of arms, with 69% of Israel's arm imports coming from the US in 2023. However, the US has warned Israel that it may stop supplying weapons if the humanitarian situation in Gaza does not improve, threatening to halt shipments if Israel invades the southern city of Rafah.

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RegTech Industry

The UK's RegTech industry is expected to grow by 24.9% annually, reaching US$657.84 million in 2024. This growth is driven by technological advancements, regulatory pressures, and the need for efficient compliance solutions, with a focus on anti-money laundering and identity verification.

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Georgia's EU Aspirations

Georgia's ambition to join the EU is enshrined in its constitution, with polls showing consistent support. However, the recent victory of the anti-Western Georgian Dream party has put these plans on hold, and the country now faces a potential lurch towards authoritarianism and closer ties with Russia.

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Economic Contraction

Germany's economy is expected to contract by 0.2% in 2024, following a 0.3% decline in 2023, marking a second consecutive year of recession. This is due to a combination of conservative public investment, over-reliance on manufacturing and exports, external shocks like the Russia-Ukraine conflict, and structural challenges such as aging infrastructure and population.

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UK's Industrial Strategy

The UK government's new industrial strategy aims to steer the economy through the 21st-century challenges, with a focus on growth, clean energy, and investment in emerging industries like AI and robotics. However, there are concerns about regional inequality and a lack of consideration for geopolitics, Brexit, and support for traditional industries.

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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.

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Automotive Industry Challenges

The automotive industry in France and Europe is facing setbacks with a wave of plant closures and a sharp drop in electric vehicle sales. This has sparked strikes and concerns about job losses. The push for electrification and emissions reduction targets by 2030 is seen as a challenge by some political groups.

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Scam Epidemic

Scams are a growing issue in Thailand, with over 1.5 million scam numbers detected and 612,603 online scam cases reported between March 2022 and July 2024, resulting in financial losses. The private and public sectors are collaborating to combat scams, and companies like Gogolook are offering anti-scam solutions to protect consumers and businesses.

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US-China Competition

Competition with China is a key theme in US politics, with economic growth, military drills, and trade wars impacting businesses. China's lead in battery technology and supply chain control is a concern, while US tax policies aim to bolster economic growth.

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US Economic Exceptionalism

The US dollar, equities, and yields are experiencing gains due to US economic exceptionalism, reduced Federal Reserve easing, and improved polling for Trump. This has resulted in volatile trading, with the US dollar securing consecutive weekly gains and gold reaching an all-time high. A Trump victory is expected to impact global trade and reduce Fed rate cuts.