
Mission Grey Daily Brief - November 11, 2024
Summary of the Global Situation for Businesses and Investors
The election of Donald Trump as the next US President has sent shockwaves through the global economy, with markets and businesses bracing for the impact of his policies. Trump's protectionist stance and threat of tariffs on imports from China and Europe have raised concerns about a potential trade war, with Asia and Ireland particularly exposed. Meanwhile, Taiwan welcomed Trump's victory, but analysts warn of potential risks to its relationship with the US and China.
Trump's Tariff Plan and the Global Economy
Donald Trump's election as the next US President has sent shockwaves through the global economy, with markets and businesses bracing for the impact of his policies. Trump has threatened tariffs of up to 60% on imports from China and 10-20% on imports from Europe, which could trigger a global trade war. Asia, which contributes the largest share of global growth, is particularly exposed, with production chains closely linked to China and significant investment from Beijing. Ireland, with its large exposure to the US market, is also vulnerable, as 75% of its goods exports to the US are chemical or pharma products produced by US multinationals operating in the country.
Taiwan's Relationship with the US and China
Taiwan has publicly hailed Trump's victory, but analysts warn of potential risks to its relationship with the US and China. Trump has suggested that Taiwan should pay the US for its defence and accused the island of stealing the US semiconductor industry. Taiwan's President Lai Ching-te has expressed confidence in continued US support, but analysts say that Trump's policy on Taiwan is highly uncertain. Taiwan could be caught in the middle of a trade war between the US and China, and any miscalculation by the Trump administration could be costly.
Indonesia's Trade Concerns
Indonesia's businesses are concerned about the impact of Trump's protectionist policies on their access to the US market and competition with Chinese producers. Chinese producers may reroute their goods to Southeast Asia, including Indonesia, if they face similar barriers to the US market. Indonesia's exports to the US could also be affected by Trump's policies, as the US is the second-largest export market for Indonesian goods. Indonesia's government is considering actions to minimise the negative impact, including pushing for trade deals, diversifying export markets, and improving competitiveness.
Trump's Approach to the EU and UK
Trump is expected to target the EU over the UK in a potential trade war, as he wants to see a successful Brexit. Trump is likely to give a preferential trade deal to the UK, while tariffs will more greatly affect the EU than the UK. Trump believes in the special relationship between the US and the UK and wants to help with a successful Brexit. The UK chancellor is expected to promote free and open trade between nations as a cornerstone of UK economic policy, calling for continued partnerships with Europe, the Middle East, Asia, and the US.
Further Reading:
Asia, the world's economic engine, prepares for Trump shock - Japan Today
Eoin Burke-Kennedy: Ireland’s €54bn exposure to Trump’s tariff plan - The Irish Times
Indonesia’s businesses fear deluge of Chinese goods after Trump takes office - asianews.network
Turkey Deports 325 Afghan Nationals In 48 Hours - Radio Free Europe / Radio Liberty
Themes around the World:
Australian Stock Market Volatility
The ASX 200 has experienced notable volatility due to external factors like bond yield fluctuations and domestic economic surprises. Key sectors such as technology, mining, and financials have seen sharp movements, reflecting investor sensitivity to macroeconomic data and global financial conditions, impacting capital flows and corporate valuations.
Impact on European Union Stability
France's political and economic crisis threatens to weaken its leadership role within the EU and destabilize the Franco-German axis, a cornerstone of European integration. Prolonged instability could disrupt EU economic coordination, trade policies, and collective responses to challenges such as climate change and technological transition, with potential contagion effects across the Eurozone.
UK M&A Market Volatility and Strategic Focus
UK merger and acquisition activity declined in volume and value amid market volatility, with investors prioritizing high-value, resilient deals in industrials, financial services, and technology sectors. Despite a cautious environment, easing interest rates and strong equity markets may foster renewed dealmaking, emphasizing quality and long-term growth potential over quantity.
South Korea's Revised GDP Growth Outlook
The Bank of Korea raised its 2025 GDP growth forecast to 0.9% from 0.8%, reflecting stronger exports and construction investment. However, growth remains sluggish amid global headwinds and domestic challenges, marking the slowest expansion since 2020. Policymakers remain cautious due to rising household debt and external uncertainties.
Vietnam as a Global Supply Chain Hub
Vietnam is rapidly replacing China as a key manufacturing and assembly hub due to US-China trade tensions. Industrial hubs like Bac Ninh attract Chinese firms relocating operations to avoid tariffs. Despite rising costs and incomplete supply chains, tariff advantages and strategic location sustain Vietnam's momentum as a global assembler, especially in electronics and automotive sectors.
Security Challenges and Investor Confidence
Escalating insurgency and terrorism, particularly in Balochistan and Khyber Pakhtunkhwa, have heightened security risks. Attacks on critical infrastructure, including CPEC projects, have increased insurance costs and delayed investments. This volatile security environment undermines investor confidence, restricts business operations, and contributes to capital outflows despite modest increases in FDI.
Geopolitical Realignment and Strategic Autonomy
Pakistan is navigating a complex global order marked by the decline of US hegemony and the rise of multipolarity, especially China's ascent. The country seeks strategic autonomy by balancing relations with Eastern and Western powers, aiming to leverage its pivotal geographic location to enhance regional trade, security cooperation, and diplomatic influence amid intensifying global rivalries.
Corporate Exodus and Investment Climate Deterioration
Major multinationals including Microsoft, Yamaha, Shell, and Pfizer have exited Pakistan citing political chaos, regulatory risks, and an unworkable business environment. This corporate flight signals declining profitability and safety for foreign investors, exacerbating unemployment, shrinking FDI, and reinforcing negative perceptions of Pakistan’s economic viability and governance.
Rising UK Fiscal and Debt Concerns
UK government borrowing costs have surged to their highest levels since 1998, driven by investor anxiety over fiscal sustainability amid high debt and slow growth. This elevates risk premiums on sterling, pressures public finances, and may trigger tax increases, dampening investment and consumer confidence, with potential spillovers to financial markets and economic stability.
Cost-of-Living Crisis Impacting Consumer Spending
A significant majority of Canadians report financial strain due to rising prices outpacing wage growth, with essentials like food and housing becoming less affordable. This cost-of-living crisis may dampen domestic consumption, affecting retail sectors and overall economic growth, thereby influencing market demand and investment outlooks.
Digital Trade Legislation Targets US Tech Firms
South Korea’s proposed digital platform laws are perceived as discriminatory against US technology companies, potentially straining bilateral trade relations. The legislation mirrors EU’s Digital Markets Act and may provoke US retaliatory tariffs or trade actions. This regulatory divergence risks complicating South Korea’s trade diplomacy and access to critical US markets.
Labor Market and Job Losses
Massive job cuts by major companies like Ford, Glencore, and ArcelorMittal highlight the ongoing industrial decline. High labor costs, rigid labor laws, and rising unemployment near 33% exacerbate social and economic challenges, undermining consumer demand and increasing socio-political risks for investors and businesses.
Rare Earths as Geopolitical Hedge
China's control over rare earth elements, critical for semiconductors and defense, positions these minerals as strategic geopolitical hedges. Export restrictions in 2023 highlighted supply chain vulnerabilities. Investors are increasingly aware of rare earths' role in portfolio resilience amid global trade tensions and technological competition.
China's Expanding Investments
Chinese investments in Brazil surged by 113% in 2024, reaching $4.18 billion across renewables, oil, mining, and manufacturing. This deepening partnership aligns with Brazil's energy transition and industrial policies, positioning China as Brazil's top emerging market investor. The influx supports infrastructure and energy sectors, diversifying Brazil's economic ties amid strained US relations.
Forex Market Sensitivity to Geopolitics
Geopolitical events significantly affect currency markets through heightened uncertainty and risk aversion, triggering capital flows to safe-haven currencies like the U.S. dollar. Trade wars, sanctions, and regional conflicts cause currency volatility, impacting international trade costs and investment returns, necessitating vigilant forex risk management.
Currency Volatility and Pound Strength
The British pound’s sharp appreciation against the US dollar has pressured UK exporters by reducing competitiveness abroad, prompting firms to increase currency hedging. Monetary policy divergence between the Bank of England and the Federal Reserve adds complexity. Exchange rate volatility impacts earnings, investment decisions, and supply chain costs, necessitating sophisticated risk management strategies for UK businesses.
EU Relations and Fiscal Policy Compliance
France's failure to meet EU deficit targets challenges the union's fiscal discipline framework. Political instability complicates adherence to multi-year deficit reduction plans, risking EU-level interventions or reputational damage. This dynamic affects France's influence within the EU and the broader regulatory environment for businesses.
Stock Market Volatility and Sectoral Shifts
South Korean equity markets experienced mixed performance with construction stocks rallying on government housing policies, while automakers declined due to operational risks. Foreign investors remain net buyers, but uncertainties over US interest rates and trade policies contribute to volatility. Currency fluctuations and bond yield movements reflect cautious investor sentiment amid global economic uncertainties.
Surge in Foreign Direct Investment
Egypt has become the 9th largest global recipient and Africa's top destination for FDI, attracting $46.1 billion in 2023/24. This influx is driven by a large labor force, strategic location, competitive tax incentives, and robust infrastructure, significantly enhancing Egypt's investment climate and export potential, with implications for international investors and trade expansion.
Federal Reserve Policy and Market Volatility
Investor concerns over Federal Reserve independence and potential interest rate cuts amid geopolitical and economic uncertainties contribute to market volatility. Changes in monetary policy influence bond yields, equity valuations, and the U.S. dollar, affecting capital flows and investment strategies globally.
Clean Energy Investment Surge
Significant investments by global asset managers in Australia's renewable energy sector, particularly solar and battery storage, are accelerating. Supported by government targets for renewables, these investments are reshaping Australia's energy landscape, offering new opportunities and risks for investors and supply chains in the clean energy transition.
Impact on Eurozone Stability and EU Relations
France's instability threatens the Franco-German axis, a cornerstone of EU integration, potentially weakening France's influence in EU policymaking. Fiscal indiscipline risks undermining EU deficit rules and could trigger contagion effects across the Eurozone, challenging collective economic governance and complicating trade, industrial policy, and climate initiatives within the bloc.
Geopolitical Risk and Oil Market Impact
Israel's military strike in Qatar has escalated Middle East tensions, significantly increasing the geopolitical risk premium on global oil markets. Given the region's critical role in supplying about a third of the world's oil, this instability threatens supply chains and raises energy prices, complicating international trade and investment strategies tied to energy security.
Currency and Foreign Reserves Stability
The South African rand has shown relative stability and modest appreciation against the US dollar, supported by better-than-expected foreign reserves data. This currency performance helps ease import cost pressures, benefiting manufacturers reliant on imported inputs, but remains sensitive to global economic shifts and US monetary policy.
Political Instability Impacting Markets
Judicial actions against opposition parties, including removal of Istanbul's CHP administration, triggered market sell-offs and bond yield spikes. Political crackdowns raise investor concerns, affecting stock and bond markets, and prompting central bank interventions to stabilize the lira. Political risks remain a significant factor influencing Turkey's investment climate and economic outlook.
Sovereign Credit Rating Risks
Concerns over weakening tax revenues and rising public debt raise the risk of a sovereign credit rating downgrade for Thailand. Despite a current debt-to-GDP ratio around 63%, slower GDP growth and fiscal pressures from aging-related spending and infrastructure investments could strain fiscal sustainability, affecting borrowing costs and investor perceptions of Thailand's economic stability.
Climate Change and Flood Impact
Severe climate-induced floods have devastated key agricultural regions, destroying up to 60% of rice crops and 35% of cotton production in Punjab. This has disrupted food supplies, increased inflation, and strained fiscal resources. The ongoing climate crisis threatens rural livelihoods, economic growth, and necessitates urgent investment in resilience, infrastructure, and international climate finance.
September Market Volatility Risks
Historically the weakest month for U.S. equities, September 2025 is marked by heightened volatility due to tariff uncertainties and Federal Reserve policy concerns. This seasonal risk factor affects investor behavior, portfolio adjustments, and capital market stability, influencing both domestic and international investment environments.
Fintech and Digital Payments Expansion
The fintech sector in Saudi Arabia has more than doubled in firms, reaching 280 active companies by mid-2025. Electronic payments now constitute 79% of retail transactions, ahead of 2025 targets. Regulatory sandboxes and AI integration foster innovation, positioning Saudi Arabia as a regional fintech leader and enhancing financial inclusion and efficiency.
USD/CAD Exchange Rate Volatility
The USD/CAD pair has experienced volatility influenced by softer U.S. employment data and expectations of Federal Reserve rate cuts. Canadian economic indicators and Bank of Canada policy decisions also play critical roles. This dynamic impacts trade competitiveness, hedging strategies, and cross-border investment decisions.
Political Influence on Financial Ratings
Moody's downgrade of Israel's sovereign credit rating, citing political risks, reflects a shift towards geopolitically influenced financial assessments. This politicization raises borrowing costs and deters institutional investment, undermining market integrity and potentially distorting capital flows, which could impact Israel's economic stability and investor confidence.
Foreign Investment and Stock Market Dynamics
Foreign investors are increasingly active in Saudi equities, accounting for 41% of buying despite overall market declines. Rock-bottom valuations and reforms easing foreign ownership attract global capital. However, domestic institutional selling and weak oil prices create short-term risks, with expectations of market recovery as economic momentum persists.
Political Instability and Economic Impact
Thailand's persistent political instability hampers long-term policy implementation, undermining investor confidence and economic growth. Frequent leadership changes and policy shifts deter consistent industrial development, particularly in key sectors like electric vehicles and semiconductors. This instability risks slowing GDP growth to around 2%, affecting trade, investment, and supply chain stability.
National Investment Strategy Success
Launched in 2021, Saudi Arabia's National Investment Strategy has been pivotal in achieving Vision 2030 targets, including increasing private sector GDP contribution and non-oil exports. The strategy's reforms, incentives, and investor services have quadrupled FDI since 2017, fostering a competitive environment and attracting global companies to establish regional headquarters in the Kingdom.
Investor Sentiment and Market Volatility
Political turmoil has heightened risk premiums on French government bonds, with yields surpassing Italy's for the first time in EU history. The rising cost of debt reflects investor anxiety over fiscal management and political uncertainty, causing volatility in bond and currency markets. While equity markets show resilience, bond market stress signals caution for international investors and lenders.
Foreign Investment and Project Uncertainty
Tariff-related uncertainties have led to a record ₹2 lakh crore worth of foreign projects being halted in Q1 2025, a 1200% increase from last year. Investor pessimism is reflected in a high ratio of dropped to new projects, signaling caution among foreign investors, especially US-based firms, potentially delaying capital inflows and expansion plans.