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Mission Grey Daily Brief - November 12, 2024

Summary of the Global Situation for Businesses and Investors

The global order is shifting as Donald Trump wins a landslide victory in the US and Germany's coalition government collapses. This marks a shift from neoliberalism to economic realism, with national security considerations taking precedence over market interests. Trump's protectionist policies and China's state-directed capitalism are intensifying geopolitical competition, pressuring businesses to make investment decisions through a geopolitical lens. The era of peak globalisation is behind us, and companies face a choice between rival IT infrastructures, markets, and currency systems. Trump's proposed tariffs and trade war threats are causing concern and uncertainty for many countries, especially those with close trade ties to the US and China.

Trump's Return to the White House and the End of the Neoliberal Era

Donald Trump's return to the White House coincides with the collapse of Germany's coalition government, signalling a shift in the global order. The German government coalition fell apart over disagreements regarding the debt brake, with former Finance Minister Christian Lindner advocating for neoliberal staples such as tax relief, deregulation, and fiscal discipline, while Chancellor Scholz pursues "economic realism", acknowledging that market-driven solutions may no longer work in a world disrupted by geo-economic competition.

Following Russia's invasion of Ukraine, Europe and Russia have economically decoupled, and while a complete decoupling of Western economies from China remains impossible due to extensive interdependence, the Biden administration has turned to export controls, investment restrictions, and a subsidy-driven industrial policy. China's state-directed capitalism is surging to the technological frontier through heavily subsidised industrial policies, threatening industries worldwide.

Trump's protectionist policies and China's state-directed capitalism are intensifying geopolitical competition, pressuring businesses to make investment decisions through a geopolitical lens. The era of peak globalisation is behind us, and companies face a choice between rival IT infrastructures, markets, and currency systems. Diversification, especially in high-tech sectors, is accelerating, potentially leading to competing economic blocs.

Trump's Tariff Plans and the Potential Impact on Global Trade

Trump's proposed tariffs and trade war threats are causing concern and uncertainty for many countries, especially those with close trade ties to the US and China. Trump has threatened to impose tariffs of between 10-20 per cent on all goods coming into the US, and up to 60 per cent on those coming from China, which could trigger global trade wars on a scale we've never seen before.

Indonesia's businesses are concerned that restrictive trade policies from the US will incentivize Chinese producers to divert large quantities of goods to Southeast Asian markets and create barriers for Indonesian exports to the US. Indonesia is China's largest trading partner and the US is the second-largest export market for Indonesian goods, so these policies could significantly impact Indonesia's economy.

Indonesia's government is taking steps to minimize the negative impact of the change of US administration, including pushing for trade deals, diversifying export markets, and improving competitiveness. More regional trade agreements are necessary to navigate the expected wave of protectionism, as such deals would cement a strong foundation for Indonesian businesses to brace for the shift of US policies.

Taiwan's Position in the US-China Trade War

Taiwanese companies with bases in mainland China are in a hurry to relocate back to Taiwan or elsewhere if Donald Trump imposes high tariffs on China. This highlights the delicate position Taiwan finds itself in as it navigates the US-China trade war.

Mexico's Response to Trump's Threats

Mexico is bracing for the challenges ahead as Donald Trump eyes a return to office, with Trump's constant threats on tariffs, massive deportations, and cross-border trade putting the country in a difficult position. Mexico has a new leader, Claudia Sheinbaum, who is more ideological and less pragmatic than the former Mexican president, Andrés Manuel Lopez Obrador.

Sheinbaum's administration could face particular pressure to address US concerns regarding immigration and drug trafficking, and her recent moves to centralize government power by diminishing independent regulatory bodies could violate US-Mexico-Canada Agreement (USMCA) terms, giving Trump grounds to push for trade renegotiations, especially regarding the auto industry and supply chain regulations.

Mexico hopes for peaceful trade dynamics, but experts argue that optimism should be tempered by a realistic understanding of Trump's national security-focused policies, which often prioritize economic protectionism.


Further Reading:

Eoin Burke-Kennedy: Ireland’s €54bn exposure to Trump’s tariff plan - The Irish Times

How A Second Trump Term Could Strain U.S.-Mexico Relations To The Breaking Point - Reform Austin

Indonesia’s businesses fear deluge of Chinese goods after Trump takes office - asianews.network

Taiwan — caught between Xi Jinping’s aggressiveness and Donald Trump’s unpredictability - Deccan Herald

Trump Wins Big, Germany’s Coalition Falls—A New Global Order? - Social Europe

Trump to target EU over UK in trade war as he wants to see ‘successful Brexit’, former staffer claims - The Independent

Trump told Putin not to escalate the war in Ukraine in their first postelection call, a report said - Business Insider

Themes around the World:

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Sovereign Credit Rating Risks

Rising public debt and weakening tax revenues raise concerns over potential sovereign credit rating downgrades. Despite a current debt-to-GDP ratio below the ceiling, slower GDP growth and fiscal deficits threaten fiscal sustainability. A downgrade could increase borrowing costs, reduce investor confidence, and constrain government capacity to finance growth-supporting initiatives.

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Strategic Geopolitical Engagements in South Asia

Turkey is expanding its influence in South Asia through military, economic, and ideological ties, notably with Pakistan. This includes arms supply, joint military exercises, and diplomatic support on contentious issues like Kashmir. Such activities raise regional security concerns and may affect Turkey's international relations and trade dynamics.

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Foreign Capital Inflows and Corporate Buybacks

Strong foreign investment, especially from U.S. funds, alongside aggressive corporate share buybacks, propels Japanese equities to near all-time highs. This influx supports liquidity and market valuations, particularly in blue-chip and industrial sectors. The trend signals growing global confidence in Japan's corporate reforms and economic resilience, enhancing attractiveness for international investors and portfolio diversification.

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Korean Firms' Massive US Investments

South Korean conglomerates pledged approximately $150 billion in investments across US manufacturing sectors, creating nearly 1.66 million US jobs. This strategic move aims to mitigate tariff impacts and strengthen bilateral economic ties, though it raises questions about domestic job creation and long-term economic effects in South Korea.

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Asia-Pacific Economic Realignment

Amid global trade fragmentation, Asia-Pacific economies, including Australia, are adapting to new trade dynamics. Regional growth remains resilient, with structural capital inflows and currency stability providing policy flexibility. Australia’s strategic positioning within this evolving landscape affects trade partnerships, investment flows, and supply chain configurations.

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Resilience of Ukrainian Private Debt

Despite the severe impact of Russia's 2022 invasion, Ukraine's private debt market, especially in metals, mining, and agribusiness sectors, has shown remarkable resilience. Companies adapted by relocating operations and finding new export routes, maintaining production and debt servicing. This resilience signals potential investment opportunities but also underscores ongoing operational risks amid conflict.

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Financial and Trade System Realignment

Iran is actively working to reduce dependence on the U.S. dollar by promoting settlement in national currencies, digital infrastructure, and multilateral currency swap mechanisms within the Shanghai Cooperation Organization. These initiatives aim to circumvent sanctions, stabilize trade flows, and enhance economic resilience, potentially reshaping regional trade dynamics and offering alternative financial pathways for international business engagement.

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Wartime Economy and Defence Spending

Russia’s wartime economy is heavily reliant on record defence spending, which supports industrial output and employment but ties economic growth to geopolitical tensions. While defence manufacturing has surged, other sectors like heavy manufacturing and agriculture face challenges. This dependency creates long-term structural vulnerabilities and limits diversification opportunities for investors.

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Economic Structural Challenges

Pakistan faces deep structural economic issues including low investment-to-GDP ratio, weak industrialization, and overreliance on remittances and foreign aid. Governance failures, political instability, and institutional weaknesses undermine reforms. Without addressing these, sustainable growth and export competitiveness remain elusive, posing risks to long-term economic stability and investor confidence.

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South Korea’s Economic Growth Rebounds on Exports

South Korea’s Q2 2025 GDP growth was revised up to 0.7%, driven by stronger exports, especially semiconductors and petrochemicals, and resilient construction investment. Despite global headwinds and US tariff pressures, the economy shows signs of recovery, supported by government fiscal measures. However, export outlook remains clouded by ongoing US trade barriers and tariff uncertainties.

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Sustainable Finance and Policy Reform Imperatives

To secure long-term economic stability, Pakistan must accelerate reforms in sustainable finance, corporate governance, and regulatory frameworks. Consistent policies, transparent tax regimes, and judicial efficiency are critical to attracting foreign direct investment, particularly in green industries. Stable and predictable business environments are essential for fostering inclusive growth and competitiveness in global markets.

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Corporate Financial Performance and Restructuring

Major corporations like Sasol report mixed financial results amid volatile global conditions. Despite a 9% turnover decline and reduced EBITDA, Sasol improved free cash flow and strengthened its balance sheet through cost management and capital optimization. These corporate adjustments reflect broader challenges in maintaining profitability and investment amid economic headwinds.

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Financial Sector Vulnerability

French banks and insurers, including Societe Generale, Credit Agricole, and BNP Paribas, have experienced sharp stock declines amid political uncertainty. Rising bond yields and credit risks threaten asset valuations and profitability. The financial sector's exposure to sovereign debt and domestic economic risks heightens systemic vulnerabilities, potentially affecting credit availability and financial market stability.

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Energy Security and Nuclear Power Debate

Taiwan's failed referendum to restart nuclear power plants intensifies energy supply challenges amid rising demand from the chip industry. With 96% energy imports and limited domestic alternatives, Taiwan faces high electricity costs and vulnerability to supply disruptions. The government must balance public safety concerns, climate goals, and industrial energy needs to ensure stable power for economic growth.

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Stock Market Recovery and Investment Opportunities

The Pakistan Stock Exchange has shown strong performance with the KSE-100 index surging nearly 90% over 12 months, driven by corporate earnings growth and stabilizing macroeconomic conditions. Undervalued equities present potential for a generational bull run, supported by easing monetary policy and improved investor sentiment, though political and economic risks remain significant.

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Economic Growth Slowdown

South Korea's economy is projected to grow only 0.9% in 2025, marking the slowest pace since the pandemic shock in 2020. This sluggish growth is driven by external pressures such as US tariffs and internal political instability, impacting export-reliant sectors like semiconductors and autos, with ripple effects on global supply chains.

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Geopolitical Realignments and Trade Diversification

Russia's pivot towards non-Western markets, especially China and India, mitigates the impact of Western sanctions by sustaining crude sales. This realignment reduces Western influence over Russia’s energy exports and complicates international efforts to isolate Moscow economically, affecting global trade patterns and investment strategies in the energy sector.

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Digital Economy and IT Market Expansion

Egypt's IT market is projected to nearly triple from $3.5 billion in 2025 to $9.2 billion by 2031, driven by state-led digital infrastructure, 5G rollout, and rising enterprise demand for cloud and software services. Government initiatives like Digital Egypt and export incentives foster growth, positioning Egypt as a regional digital hub and enhancing competitiveness in global technology markets.

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Supply Chain Disruptions and Tariffs

US-imposed tariffs on imports from countries including China and India, alongside Mexico's protective measures against Chinese goods, disrupt supply chains. The elimination of import exemptions affects e-commerce platforms and manufacturing inputs, compelling companies to reassess sourcing strategies and cost structures amid rising trade barriers.

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Social Unrest and Labor Market Implications

Proposed austerity measures, including public spending cuts and holiday abolitions, have triggered widespread social opposition and planned strikes. Such unrest risks disrupting supply chains, increasing operational costs, and deterring foreign investment, complicating France's economic recovery and business environment stability.

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Geopolitical Tensions Boost Defence Sector

Escalating tensions with Russia, including drone incursions into NATO airspace, have driven a surge in UK and European defence stocks and commitments to increase defence spending. This geopolitical risk elevates demand for defence capabilities, stimulates investment in the sector, and influences government budgets and industrial strategy, impacting international trade and security-related supply chains.

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Labor Market Concerns and Employment Risks

Rising unemployment and job insecurity are increasingly affecting German consumer confidence and spending. The manufacturing sector's struggles, including layoffs and reduced hiring, exacerbate fears of job losses. Structural shifts and demographic challenges further pressure the labor market, potentially slowing economic momentum and increasing social tensions amid political uncertainties.

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Construction Industry Contraction and Recovery Prospects

Iran's construction sector faces a slight contraction in 2025 due to inflation, political instability, currency devaluation, and war impacts. However, government plans to expand renewable energy and infrastructure, including nuclear power plants with Russian cooperation, forecast moderate growth post-2025. The sector's recovery depends on political stability and easing of sanctions to attract investment.

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US Regulatory Changes and Compliance Risks

Softening US data privacy and cybersecurity regulations, alongside rollbacks of ESG and DEI requirements, pose significant compliance challenges for international firms, especially in financial services. Divergence from EU standards increases operational complexity and reputational risks, necessitating enhanced cross-border regulatory oversight and strategic adaptation.

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US Tariffs and Trade Uncertainty

US-imposed tariffs on Thai exports, including a 19% levy, disrupt trade flows and compel supply chain recalibrations. These tariffs, alongside uncertainties over transshipment rules, undermine Thailand's export competitiveness, prompting businesses to seek alternative markets or relocate production, thereby affecting foreign direct investment and industrial policy priorities.

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Economic Growth and Investment Outlook

UK economic growth forecasts have been downgraded to around 1.2% for 2025 and 1% for 2026, with sluggish demand and subdued business investment due to higher labor costs and global uncertainties. Surveys indicate reduced capital spending intentions, highlighting cautious corporate sentiment that may constrain long-term growth and productivity improvements.

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US Immigration Raid Impact on Korean Firms

A large-scale US immigration raid at a Hyundai-LG battery plant in Georgia has caused diplomatic strain and investor anxiety. The detention of Korean workers threatens operational continuity and delays in US-based projects, undermining confidence in the US investment environment. This incident highlights compliance risks and may deter Korean firms from expanding manufacturing operations in the US.

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Focus on Technology and ESG in Business Strategy

Amid global economic volatility, Indonesian businesses prioritize capital optimization, AI adoption, and ESG initiatives over the next five years. This strategic shift aims to enhance innovation, efficiency, and sustainability, positioning Indonesia competitively in global markets despite domestic challenges.

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High Cost of Living Challenges

Israel's GDP per capita surpasses Germany's, yet purchasing power is significantly lower due to high living costs. This economic imbalance pressures household consumption and may constrain domestic market growth. Addressing cost of living and investing in infrastructure sectors like energy and transport are critical for sustaining economic resilience and improving business conditions.

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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.

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Political Instability Disrupts Supply Chains

Political instability and government changes, including in the U.S., have become persistent risks disrupting global supply chains. Sudden policy reversals, tariffs, export controls, and regulatory volatility create uncertainty in sourcing, production, and compliance, forcing companies to adopt proactive strategies to build resilience amid unpredictable geopolitical and legal environments.

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US-Mexico Trade Tensions

Ongoing trade disputes, including US tariffs and legal challenges, create volatility impacting supply chains and investment decisions. The uncertainty around tariff policies under the Trump administration pressures the Mexican peso and complicates bilateral trade relations, affecting export-dependent sectors and cross-border commerce.

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Rising UK Borrowing Costs

UK government borrowing costs have surged to a 27-year high, with 30-year gilt yields reaching 5.7%. This spike raises concerns about fiscal sustainability, investor confidence, and the government's ability to manage public finances. The elevated borrowing costs increase debt servicing expenses, potentially leading to higher taxes or spending cuts, impacting investment and economic growth.

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Uneven Domestic Consumption Recovery

Taiwan’s internal demand recovery is polarized, with strong industrial growth contrasting weak consumer spending and service sector performance. Factors such as labor shortages, inflation, and US tariff impacts suppress consumption. The commercial services sector faces recession risks, highlighting structural challenges in balancing export-driven growth with robust domestic market development.

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Chinese Manufacturing Investment Surge

Chinese companies are increasingly establishing manufacturing operations in Indonesia, driven by local policy shifts and supply chain diversification. In 2024, Chinese investments reached 121.6 trillion rupiah, making China the third largest foreign investor. This trend enhances Indonesia's role as a regional production hub, benefiting from tax incentives and a growing domestic market nearing 300 million population.

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Social Inequality and Economic Discontent

Widespread protests reflect deep-rooted frustrations over inequality, inflation, mass layoffs, and perceived government corruption. These socio-economic issues threaten social stability and could lead to policy shifts increasing fiscal burdens, affecting business costs, consumer demand, and overall economic growth prospects.