Mission Grey Daily Brief - November 18, 2024

Summary of the Global Situation for Businesses and Investors

The G20 summit in Brazil is overshadowed by two major wars and Donald Trump's recent election victory. Heightened global tensions and uncertainty about an incoming Trump administration have tempered any expectations for a strongly worded statement addressing the conflicts in the Middle East and between Russia and Ukraine. Experts instead anticipate a final document focused on social issues like the eradication of hunger — one of Brazil's priorities — even if it aims to include at least a mention of the ongoing wars.

Typhoons in the Philippines have caused tidal surges and displaced massive numbers of people.

Geopolitical tensions simmer as Cop29 heads into its second week in Baku, Azerbaijan. Climate advocates are urging world leaders to commit to a strong finance deal.

Japan and Ukraine have signed a security info-sharing pact to boost cooperation.

Russia-Ukraine War

The Russia-Ukraine war has dragged past its thousandth day, with hundreds of missiles and drones streaking across Kyiv's skies, killing at least two people, leaving a dozen more injured, and damaging the country's already beleaguered energy grid. Russia's relentless aerial bombardment has destroyed half of Ukraine's energy production capacity, according to President Volodymyr Zelensky.

With the harsh Ukrainian winter fast approaching, the country is already suffering from major energy shortfalls, while its outmanned and outgunned forces have been steadily ceding ground to the Kremlin's troops for weeks. Kyiv has implored its Western allies for help to rebuild its energy grid — a hugely expensive undertaking — and to supply its outgunned forces with more aerial defence weapons.

Many in Ukraine fear that Western help will not be as freely given following the imminent return of Trump to the White House in January. The Republican president-elect has frequently questioned the United States' backing for Ukraine, and campaigned with the promise of cutting a quick deal to end the war.

Joe Biden has authorised Ukraine’s use of long-range missiles to strike hundreds of miles inside Russia for the first time, according to reports. The decision marks a major policy shift and comes after Russia warned that Moscow would see the move to allow the use of US-made missiles as an “escalation.” With Biden leaving office in two months, president-elect Donald Trump has indicated he will limit American support for Ukraine and pledged to end the war quickly once he takes office in January.

Ukrainian President Volodymyr Zelensky has campaigned for months to allow Ukraine’s military to use US weapons to hit Russian military targets far from its border, and retains important allies in both parties in Congress. He said Sunday evening that the strikes, if carried out, would "speak for themselves." But he did not confirm the authorization directly.

The Kremlin has said that if the United States allowed Ukraine to use US-made weapons to strike far into Russia, it would lead to a rise in tension and deepen the involvement of the United States in the conflict.

North Korea's Involvement in the Russia-Ukraine War

North Korea may end up sending Putin 100,000 troops for his war, according to people familiar with assessments made by some Group of 20 nations. The analysis is one of several on the evolving partnership between Russian President Vladimir Putin and North Korean leader Kim Jong Un, said the people, speaking on condition of anonymity to talk about private discussions. They stressed that such a move wasn’t imminent and that military support at that scale — if it occurred — would likely happen in batches with troops rotating over time rather than in a single deployment.

Ukraine’s ambassador to South Korea made a similar assessment earlier this month. Dmytro Ponomarenko said in an interview with VOA that Kyiv expected up to 15,000 North Korean troops deployed to fight in Russia’s Kursk region – and possibly in occupied areas of eastern Ukraine – to rotate every few months.

Kim’s decision to send North Korean troops to join Russia’s fight against Ukraine has alarmed Kyiv’s allies, who’ve warned that it risks exacerbating what is already Europe’s largest conflict since World War II. They believe the deepening cooperation between Putin and Kim could also impact the security balance in the Indo-Pacific region, where there’s mounting rivalry between China and the US.

The issue will be raised by several allies at the G-20 Summit in Brazil this week including by German Chancellor Olaf Scholz when he meets Chinese President Xi Jinping, Bloomberg previously reported. Scholz told Putin Friday in a rare phone call that the deployment of North Korean troops was a “grave escalation” of the war against Ukraine.

Scholz will press the Chinese leader at their meeting in Rio on Tuesday to use his influence over Russia and North Korea to avoid further escalation in the war, according to German officials.

The North Korean deployment shows the war is becoming globalized and Scholz and Xi will need to discuss this new dimension of the conflict, the officials said.

Worries were also raised by allies at the APEC gathering in Lima, Peru, this past week, another person said.

Xi has been the biggest benefactor to Putin and Kim in recent years, and sees both leaders as partners in pushing against the US-led world order. But his government has remained silent publicly on the dispatch of North Korean troops to Russia — a sign the Chinese president may be unhappy with the arrangement.

The Kim-Putin partnership risks adding economic pressure on China, just as Xi is bracing for potential disruption from tariffs threatened by US President-elect Donald Trump when he returns to the White House. It also undermines Beijing’s argument that the US shouldn’t have military alliances in the Indo-Pacific region.

China doesn’t “allow conflict and turmoil to happen on the Korean Peninsula” and it won’t “sit idly by when its strategic security and core interests are under threat,” Xi told US President Joe Biden at talks Saturday on the sidelines of the Asia-Pacific Economic Cooperation summit in Lima.

North Korea has so far sent more than 10,000 troops to fight alongside Putin’s army in Russia’s Kursk region, where Ukrainian forces have occupied part of the border territory since a surprise incursion in August. In return, Russia is providing money and helping North Korea increase its capabilities.

South Korea has said there’s a “high chance” that North Korea will seek cutting-edge technology transfers from Russia — including technology related to tactical nuclear weapons, intercontinental ballistic missiles, reconnaissance satellites and ballistic missile submarines.

As well as manpower, North Korea has also sent millions of rounds of artillery ammunition and other weapons to Russia. The Financial Times reported this week, citing Ukrainian intelligence, that Pyongyang has supplied long-range rocket and artillery systems to Russia.

US-China Relations

China’s leader Xi Jinping met for the last time with President Biden on Saturday, but was already looking ahead to President-elect Donald Trump and his "America first" policies, saying Beijing "is ready to work with a new U.S. administration."

During their talks on the sidelines of the annual Asia-Pacific Economic Cooperation summit in Peru, Xi cautioned that a stable China-U.S. relationship was critical not only to the two nations but to the "future and destiny of humanity."

Without mentioning Trump’s name, Xi appeared to signal his concern that the incoming president’s protectionist rhetoric on the campaign trail could send the U.S.-China relationship into another valley.

"China is ready to work with a new U.S. administration to maintain communication, expand cooperation and manage differences so as to strive for a steady transition of the China-U.S. relationship for the benefit of the two peoples," Xi said through an interpreter.

Xi, who is firmly entrenched atop China’s political hierarchy, spoke forcefully in his brief remarks before reporters. Biden, who is winding down more than 50 years of public service, talked in broader brushstrokes about where the relationship between the two countries has gone.

He reflected not just on the past four years but on the decades the two have known each other.

"We haven’t always agreed, but our conversations have always been candid and always been frank. We’ve never kidded one another," Biden said. "These conversations prevent miscalculations, and they ensure the competition between our two countries will not veer into conflict."

Biden urged Xi to dissuade North Korea from further deepening its support for Russia’s war on Ukraine. The leaders, with top aides surrounding them, gathered around a long rectangle of tables in an expansive conference room at a Lima hotel.

They had much to discuss, including China’s indirect support for Russia, human rights issues, technology and Taiwan, the self-ruled democracy that Beijing claims as its own. On artificial intelligence, the two agreed on the need to maintain human control over the decision to use nuclear weapons and more broadly improve safety and international cooperation of the rapidly expanding technology.

There’s much uncertainty about what lies ahead in the U.S.-China relationship under Trump, who campaigned promising to levy 60% tariffs on Chinese imports.

Already, many American companies, including Nike and eyewear retailer Warby Parker, have been diversifying their sourcing away from China. Shoe brand Steve Madden says it plans to cut imports from China by as much as 45% next year.

In a congratulatory message to Trump after his victory over Vice President Kamala Harris, Xi called for the U.S. and China to manage their differences and get along in a new era. In front of cameras Saturday, Xi spoke to Biden — but it was unmistakable that his message was directed at Trump.

"In a major flourishing sci-tech revolution, neither decoupling nor supply chain disruption is a solution," Xi said. "Only mutual, beneficial cooperation can lead to common development. ‘Small yard, high fence’ is not what a major country should pursue."

Biden administration officials have said they would advise the Trump team that managing the intense competition with Beijing will likely be the most significant foreign policy challenge they will face.

On Saturday, White House national security adviser Jake Sullivan said Biden had reinforced to Xi "that these next two months are a time of transition" and that the president would like to pass off the U.S.-China relationship "in stable terms" to the new administration.

Biden has viewed his relationship with Xi as among the most consequential on the international stage and put much effort into cultivating it.

Trump's "America First" Policy

Trump's "America First" policy could shift the Horn of Africa policy and shake up Mideast diplomacy on Iran.

Trump's recent election victory and the imminent return of an America First doctrine may also hamper the diplomatic spirit needed for broad agreement on divisive issues at the G20 summit in Brazil.<co: 11>G20 summit in Brazil.</

Themes around the World:

Impact of US Trade Policies on Vietnam

US trade policies under the Trump administration, including tariff impositions and legal challenges, have created uncertainty for Vietnamese exporters and multinational companies operating in Vietnam. These policies drive firms to reassess supply chains, increase costs, and seek diversification to mitigate risks associated with unpredictable trade barriers.

Threats to US Officials and Cybersecurity Risks

US intelligence warns of potential Iranian targeting of US government officials and cyberattacks amid escalating tensions. This raises concerns about retaliatory actions that could affect international diplomatic relations and cybersecurity frameworks, influencing multinational corporations’ risk management and operational security.

Military-Industrial Collaboration and Defense Aid

Ukraine’s collaboration with Western defense industries, including joint ventures with companies like Boeing and potential US sales of Patriot systems, strengthens its military capabilities. Continued Western military aid and support for Ukraine’s defense industrial base are critical for sustaining resistance against Russian advances, impacting defense sector investments and shaping regional security dynamics.

Oil Price Fluctuations and Energy Security

Oil prices surged following Middle East hostilities, with Brent crude and WTI crude experiencing sharp increases. The U.S. energy sector benefits from higher prices, while transportation and logistics face cost pressures. Disruptions in Iranian oil exports and potential blockades threaten global energy security, influencing inflationary pressures and operational costs across industries.

China's Middle East Economic and Geopolitical Risks

China’s deepening economic ties with Iran and broader Middle East through Belt and Road projects face risks from regional conflicts, including Israel-Iran hostilities. Disruptions threaten critical energy imports and trade routes like the Strait of Hormuz. China’s investments and supply chains in the region are vulnerable, necessitating risk management amid escalating geopolitical instability.

Geopolitical Tensions and Middle East Conflict

Russia maintains active diplomatic engagement amid escalating Israel-Iran tensions, impacting global commodity markets, notably aluminum and oil prices. The Middle East conflict influences supply chain volatility and commodity cost structures, with Russia playing a mediating role, affecting international trade dynamics and geopolitical risk assessments.

Defense and Security Sector Growth

Heightened geopolitical tensions have accelerated government spending on defense, surveillance, cybersecurity, and related technologies. Companies specializing in AI-driven intelligence, cyber defense, and advanced aerospace technologies are experiencing significant investor interest, reflecting a strategic shift in investment priorities and supply chain focus towards national security and resilience.

Economic Instability and Corporate Bankruptcies

Economic challenges including currency volatility, rising costs, and shrinking global demand have led to significant corporate bankruptcies, exemplified by the collapse of major textile firms. This signals structural weaknesses in Turkey's economy, threatening employment, disrupting supply chains, and deterring foreign investment due to heightened financial risks.

Domestic Security Concerns and Foreign Interference

Heightened concerns over Iranian-linked domestic threats and foreign interference in Canada impact national security policies and diplomatic relations. Allegations of espionage and transnational repression influence Canada’s law enforcement cooperation, immigration policies, and bilateral ties, particularly with India and Iran, affecting the business environment through increased regulatory scrutiny and geopolitical risk.

Agricultural Sector Stress and Food Security

Extreme weather events and heatwaves have caused premature crop failures and livestock losses, severely impacting Pakistan’s agriculture, which employs 40% of the workforce and contributes 19% to GDP. Reduced yields in wheat, sugarcane, and cotton increase food prices, job losses, and import dependency, exacerbating inflation and threatening national food security and rural livelihoods.

India-UK Trade and Strategic Partnership

The recently signed India-UK Free Trade Agreement, granting zero-duty access on 99% of Indian exports, strengthens bilateral trade projected to double by 2030. This partnership enhances supply chain integration, investment flows, and geopolitical cooperation, providing India with a stable trade ally amid global uncertainties and supporting export sector resilience.

Trade Competitiveness and Export Challenges

Pakistan’s export performance lags behind regional peers due to low competitiveness, limited product diversification, and structural inefficiencies. Trade deficits persist, and tariff rationalization alone is insufficient to boost exports. Enhancing governance, regulatory reforms, workforce skills, and integration into global value chains are essential to regain market share, stimulate economic growth, and reduce external vulnerabilities.

Geopolitical Tensions Impacting Economy

Escalating Middle East conflicts, particularly the Israel-Iran crisis, pose significant risks to Pakistan’s economy. Disruptions in the Strait of Hormuz threaten oil supply routes, driving crude prices up to $130 per barrel. This inflates Pakistan’s energy import bill, pressures the currency, raises inflation, and increases costs across sectors like textiles and chemicals, undermining trade and investment confidence.

Geopolitical Tensions and Security Risks

Heightened geopolitical tensions, exemplified by NATO's calls for increased defense spending amid Russian threats, impact Vietnam's strategic environment. These developments influence regional security dynamics, potentially affecting foreign investment confidence, supply chain stability, and trade routes in Southeast Asia, where Vietnam plays a critical role.

Advancements in German Software Development

The release of .NET 9.0 with features like persisted dynamic assemblies reflects Germany's ongoing technological innovation in software development. This progress supports competitive advantages in digital industries, software exports, and tech-driven supply chain efficiencies, attracting investment and fostering growth in Germany's high-tech sectors.

Fiscal Discipline and Debt Reduction

Egypt targets an annual external debt reduction of $1-2 billion to enhance fiscal sustainability amid global economic volatility. Tax reforms have increased revenues by 36%, expanding the tax base without new burdens. These fiscal measures aim to stabilize the economy, improve the business climate, attract investment, and support social protection, thereby reinforcing investor confidence and economic resilience.

Security and Border Militarization

The U.S. deployed over 1,000 additional troops to the Mexico border, expanding military zones and surveillance to combat migration and cartel activities. Mexico rejects U.S. intervention, emphasizing sovereignty. This militarization affects cross-border trade, migration flows, and diplomatic relations, with implications for supply chains and regional security cooperation.

Transatlantic Relations and Diplomacy

Germany's diplomatic efforts under Merz aim to stabilize relations with the U.S., particularly managing unpredictable dynamics with President Trump. The success or failure of these engagements will influence trade policies, security cooperation, and investment climates, affecting transatlantic supply chains and multinational business confidence amid uncertainties in U.S.-Europe relations.

Political Centralization and Governance Concerns

The consolidation of power under President Erdoğan's administration, characterized by authoritarian tendencies and weakened democratic institutions, raises concerns about policy unpredictability and governance quality. This political environment may increase regulatory risks, reduce transparency, and complicate engagement for international investors and businesses operating in Turkey.

Geopolitical Risks from Middle East Conflict

South Africa's active diplomatic stance on the escalating Israel-Iran conflict, including leading a Global South coalition and hosting G20 Sherpas meetings, underscores significant geopolitical risks. These tensions threaten regional stability, impact South African citizens abroad, and introduce uncertainties affecting international trade, investment flows, and global supply chains linked to South Africa.

Frozen Russian Sovereign Assets

Western freezing of approximately $300 billion in Russian sovereign assets has escalated Russia’s push for regional payment systems and financial independence. Potential asset seizure risks irreversible shifts in global financial architecture, affecting cross-border transactions, investor confidence, and Russia’s engagement with Western financial institutions.

Supply Chain Disruptions and Security Risks

Incidents of organized crime, drug trafficking, and violence in Vietnam, such as drug-positive drivers and criminal activities in industrial zones, pose risks to logistics and supply chain security. These challenges can disrupt transport routes, increase compliance costs, and affect investor confidence, necessitating enhanced security measures and risk management in supply chain operations.

Energy Sector and Renewables Expansion

Egypt is advancing renewable energy investments, notably a $200 million solar manufacturing hub in Ain Sokhna, aiming to localize production and create over 1,800 jobs. This aligns with Egypt’s Vision 2030 to boost clean energy, reduce import dependency, and attract sustainable investments, enhancing energy security and positioning Egypt as a regional green energy hub.

U.S. Dollar Weakness and Capital Flows

The U.S. dollar has depreciated nearly 10% on a trade-weighted basis amid concerns over trade policies and global investor confidence. With the U.S. net international investment position at an all-time low, capital inflows may slow, impacting financing for trade deficits and budget imbalances. Currency volatility influences multinational operations, investment returns, and global purchasing power.

Energy Security and Oil Price Volatility

Conflicts involving major oil producers such as Iran and Russia have exposed vulnerabilities in global energy supply chains. Rising oil prices, driven by fears of supply disruptions and potential blockades of critical routes, increase costs for businesses and consumers, influencing inflation, transportation, and manufacturing sectors. The U.S. push for energy independence highlights the strategic importance of domestic fossil fuel resources.

Israel's Risk Premium Dynamics

Israel's risk premium has shown unusual behavior, declining despite military conflicts, reflecting investor confidence in Israel's economic resilience. This dynamic influences asset prices, bond yields, and the cost of capital, shaping investment strategies and financial market stability amid geopolitical tensions.

Western Military and Financial Support

Western countries, including the US and Germany, provide critical military aid, financial assistance, and air defense systems to Ukraine. This support underpins Ukraine's defense capabilities but also escalates geopolitical tensions with Russia, influencing international trade dynamics and investor confidence in the region.

Transatlantic Relations under Merz and Trump

Chancellor Merz's diplomatic engagements with former U.S. President Trump highlight the fragile but critical transatlantic relationship. Uncertainties around U.S. military presence and political rhetoric influence investor confidence, trade policies, and bilateral cooperation frameworks essential for Germany's international business environment.

Digital Fraud and Social Media Risks

Cases of online scams, such as fraudulent Facebook accounts selling others' goods, highlight growing cybersecurity and consumer protection challenges. These risks can undermine trust in digital commerce platforms, necessitating stronger regulatory frameworks and enforcement to safeguard businesses and consumers in Vietnam's digital economy.

Real Estate Market Dynamics

The regional conflict has created a complex real estate environment in Egypt, with increased demand as property is viewed as a safe haven asset. However, rising construction costs due to energy price volatility and supply chain disruptions threaten project execution and pricing strategies, potentially impacting investment returns and sector stability.

Ukraine’s Defense Budget and Fiscal Constraints

Ukraine’s Finance Ministry faces challenges reallocating funds to meet escalating defense expenditures amid limited options for tax hikes or domestic borrowing. The 2025 budget amendments prioritize military spending, increasing defense allocations by nearly $9.7 billion, while cutting funding for other sectors. This fiscal strain impacts economic growth prospects and necessitates international financial support to sustain defense and reconstruction efforts.

International Diplomatic and Legal Challenges

Iran condemns Israeli and US military actions as violations of international law, emphasizing its nuclear program's peaceful nature under IAEA supervision. These diplomatic tensions affect Iran's global standing, complicate negotiations, and influence sanctions regimes, impacting foreign investment and trade relations.

Internal Trade Barrier Reforms

Canada is undertaking legislative and interprovincial efforts to dismantle internal trade barriers that cost the economy an estimated $200 billion annually. While federal Bill C-5 initiates regulatory harmonization and labor mobility improvements, provincial actions vary, with some exemptions persisting. These reforms aim to enhance domestic market integration, reduce costs, and improve supply chain efficiency, crucial for competitiveness amid external trade tensions.

US-China Trade War and Tariffs

Ongoing US-China trade tensions have led to tit-for-tat tariffs affecting hundreds of billions in goods, disrupting supply chains and investment flows. Despite recent trade talks and tentative frameworks, structural divergences remain. Tariffs continue to challenge US companies operating in China, prompting localization, production shifts, and uncertainty in bilateral trade relations.

Corporate Governance and Legal Compliance

Cases of corporate fraud, illegal invoice trading, and governance disputes in Vietnamese companies reveal systemic risks in business transparency and regulatory enforcement. These issues can undermine investor trust and complicate due diligence processes. Strengthening legal frameworks and compliance mechanisms is critical for improving Vietnam’s investment climate and ensuring sustainable business operations.

Military Supply Chains and Regional Conflicts

Russian intelligence reports Serbia’s indirect military supplies to Ukraine via intermediaries, highlighting complex supply chains supporting conflict zones. This dynamic affects regional security, sanctions enforcement, and risks for companies involved in defense-related trade, influencing geopolitical risk evaluations for investors.