Mission Grey Daily Brief - January 13, 2025

Summary of the Global Situation for Businesses and Investors

The global situation remains complex, with several key developments impacting the geopolitical and economic landscape. In Ukraine, the capture of North Korean soldiers has raised questions about Pyongyang's involvement with Russia, while the Biden administration's new sanctions on Russia's energy sector aim to further limit its ability to finance the invasion. Meanwhile, Turkey and Saudi Arabia are finding common ground on Syria, with Saudi Arabia calling for the lifting of sanctions to boost post-Assad reconstruction. In Europe, Sweden's contribution of warships to NATO's Baltic presence highlights continued efforts to strengthen regional security. Lastly, Japan's PM urges Biden to address concerns over the U.S. Steel deal, emphasising the importance of economic security and cooperation among allies.

Russia-Ukraine War and North Korea's Involvement

The Biden administration's new sanctions on Russia's energy sector are a significant development in the ongoing Russia-Ukraine war. The sanctions, announced on January 10, target two of Russia's largest oil producers, a major liquefied natural gas project, and over 100 tankers in its "shadow fleet", aiming to further limit Russia's ability to finance its invasion of Ukraine. Oil is Russia's most important source of revenue, accounting for over a third of its federal budget. The new measures are expected to drain billions of dollars from the Kremlin's war chest, increasing the costs and risks for Moscow to continue the war.

The sanctions come as Ukraine has captured two North Korean soldiers, transporting them to Kyiv for questioning, in what Ukraine's security services call "irrefutable evidence" of Pyongyang's involvement with Russia. Both soldiers were captured on January 9 in the Russian border region of Kursk. One had fake Russian identification documents, while the other had none. Russia and North Korea deny their soldiers are working together, but the US, Ukraine, UK, and South Korea believe otherwise. Communication with the prisoners is being done through translators and in cooperation with South Korean intelligence.

Ukrainian President Volodymyr Zelensky has posted pictures of the prisoners, saying "the world needs to know the truth about what is happening", and has instructed the Security Service of Ukraine to grant journalists access to the prisoners.

The sanctions and North Korea's involvement have significant implications for businesses and investors. The sanctions target key Russian energy companies and infrastructure, which could disrupt energy supply chains and increase energy costs, impacting businesses and consumers globally. The involvement of North Korean soldiers also raises concerns about the war's escalation and potential for further international involvement.

Businesses with operations or supply chains in the region should closely monitor the situation, assess potential risks, and consider contingency plans. Investors should also consider the potential impact on energy markets and related industries, as well as the broader geopolitical implications.

Syria's Future and Saudi Arabia's Role

Turkey and Saudi Arabia are finding common ground on Syria, with Saudi Arabia calling for the lifting of sanctions to boost post-Assad reconstruction. European and Middle Eastern diplomats met in Riyadh to discuss Syria's future, with Saudi Arabia urging the EU to lift sanctions to facilitate Syria's economic recovery. Germany has called for a "smart approach" to sanctions, providing rapid relief for the Syrian population, and has announced additional aid for food, emergency shelters, and medical care.

The US and European countries have been wary of Syria's new rulers, former insurgents who overthrew Assad, due to their Islamist roots. They have stated that ending sanctions depends on the progress of the political transition. The interim government has vowed to move towards a pluralist, open system and is seeking international support as the country recovers from a devastating civil war.

Turkey, a strong supporter of the Syrian opposition to Assad, has pledged support to the new government, especially in combating threats from the Islamic State group. Turkey's Foreign Minister, Hakan Fidan: 2>, has co: 2>emphasised the importance of establishing a balance between international expectations and the new administration's realities.

The evolving dynamics between Turkey and Saudi Arabia regarding Syria's future have significant implications for businesses and investors. The potential lifting of sanctions could open up new opportunities for investment and trade in Syria, particularly in sectors related to reconstruction and development. However, businesses should carefully assess the political and security risks associated with operating in a post-conflict environment, and consider the potential impact of changing regional dynamics on their operations.

Sweden's Contribution to NATO's Baltic Presence

Sweden's decision to contribute up to three warships to NATO's Baltic presence is a significant development in European security. This move strengthens NATO's presence in the Baltic region, which has gained strategic importance due to Russia's invasion of Ukraine. The warships will enhance NATO's capabilities in maritime surveillance, anti-submarine warfare, and other critical areas.

Sweden's contribution is part of a broader effort by NATO to reinforce its presence in the Baltic, which has become a focal point of tensions with Russia. The region's strategic importance has increased due to its proximity to Russia and key energy infrastructure.

For businesses and investors, Sweden's contribution highlights the continued focus on European security and the importance of regional stability. While the Baltic region may not be a direct area of operation for many businesses, the broader implications of this development should be considered. The reinforcement of NATO's presence could impact regional trade and investment flows, and influence the geopolitical landscape in Europe.

Japan-US Relations and Economic Security

Japan's Prime Minister, Shigeru Ishiba, has urged US President Joe Biden to address concerns over the blocked takeover of United States Steel Corp. by Nippon Steel Corp. Ishiba emphasised the importance of an investment-friendly environment for allies and partners, particularly in ensuring economic security. The blocked deal has raised concerns in business circles and highlighted the complex nature of US-Japan economic relations.

Ishiba stressed the need for cooperation among allies and like-minded partners in building robust supply chains and making their countries investment-friendly. The three leaders also agreed to jointly counter economic coercion and unilateral attempts to change the status quo by force, in an apparent reference to China. They confirmed progress in ensuring maritime and economic security and agreed to continue working towards a free and open Indo-Pacific.

Ishiba is considering a visit to the US to meet with President-elect Donald Trump, underscoring the importance of maintaining strong US-Japan ties.

For businesses and investors, the evolving US-Japan relationship and focus on economic security have significant implications. The blocked deal highlights the potential challenges of cross-border investments, particularly in sectors deemed critical to national security. Businesses should closely monitor the evolving US-Japan relationship and consider the potential impact on investment opportunities and supply chains. The emphasis on economic security also underscores the growing importance of geopolitical factors in business decisions.

Themes around the World:

Fiscal and Credit Rating Risks

Mexico faces risks of a credit rating downgrade due to rising public debt, fiscal deficits, and potential financial support for state enterprises like Pemex and CFE. S&P warns that failure to contain fiscal imbalances and adverse policy outcomes could erode investor confidence and increase borrowing costs, impacting Mexico's macroeconomic stability.

Taiwan's Green Energy Policy Challenges

Recent amendments to environmental and tourism laws have severely disrupted Taiwan's solar energy projects, threatening the island's renewable energy expansion. This setback complicates the semiconductor sector's RE100 commitments and raises strategic dilemmas about balancing industrial growth with sustainable energy goals.

Large-Scale Electrolyzer Deployments for Green Hydrogen

Plug Power secured contracts to supply 55 MW of GenEco PEM electrolyzers for three UK green hydrogen projects backed by government funding. These projects, located in Cumbria, Greater Manchester, and Plymouth, aim to decarbonize industrial operations and transport sectors. Operational by 2027, they represent the UK's largest electrolyzer installations, advancing regional hydrogen infrastructure and supporting multi-sector adoption aligned with net-zero strategies.

Economic Instability and Currency Surge

Iran faces severe economic instability marked by a sharp surge in the US dollar and gold prices, with the dollar surpassing 1.13 million rials. Inflation and capital flight have intensified following the reinstatement of UN sanctions via the snapback mechanism, undermining investor confidence and complicating import financing, thus impacting trade and supply chains.

Inflation Trends and Monetary Policy Outlook

UK inflation remains elevated but shows signs of peaking, influencing Bank of England's interest rate decisions. A potential rate cut in December hinges on inflation data and labour market conditions, affecting borrowing costs, consumer spending, and business investment strategies.

Record German Trade Deficit with China

Germany's trade deficit with China has reached a record €87 billion, driven by declining exports and rising imports. This deficit highlights the shifting balance in bilateral trade, with German automakers losing market share to Chinese competitors. The widening gap exacerbates supply chain vulnerabilities and intensifies geopolitical tensions between Berlin and Beijing.

Labor Market and AI Impact

While skilled labor shortages have eased, German firms anticipate an 8% workforce reduction over five years due to AI adoption, particularly in manufacturing. Rising layoffs, especially in automotive, reflect structural shifts. This transformation poses challenges for social stability and necessitates policies balancing technological advancement with workforce transition support.

Talent Exodus and Demographic Challenges

Israel faces significant emigration of young, well-educated professionals, particularly from the tech sector, driven by domestic political turmoil and security concerns. This brain drain poses risks to innovation capacity, labor market dynamics, and long-term economic growth, challenging business operations and investment attractiveness.

State-Owned Enterprise Consolidation

Pertamina's planned consolidation of subsidiaries aligns with broader government efforts to streamline nearly 1,000 state-owned enterprises to about 200. This rationalization aims to enhance operational efficiency and focus on core energy activities, impacting energy sector investments and state enterprise governance.

Foreign Investment and Franco-Turkish Ties

French and Franco-Turkish firms have invested over $4 billion from 2020-2024 and plan an additional $5.7 billion, emphasizing Turkey as a competitive production hub. These investments enhance employment, R&D, and exports, reinforcing Turkey’s integration into global value chains and signaling sustained foreign investor confidence despite economic fluctuations.

Economic Impact and Job Preservation

The ART is projected to save thousands of Malaysian jobs by reducing tariff burdens and maintaining export competitiveness, particularly in high-value sectors. It supports SMEs by providing tariff-free access to the US market, enabling integration into global supply chains, innovation, and workforce upskilling, thus fostering economic stability and growth.

Agricultural Market Expansion and Export Demand

Brazil’s agriculture sector is forecasted to grow steadily, supported by rising global demand, especially from China, and increasing adoption of digital farming technologies. Expansion into frontier regions and government credit programs bolster production, though logistics bottlenecks and climate risks remain challenges. Agriculture remains a cornerstone of Brazil’s trade balance and rural economy.

Industrial Sector Challenges and Investment Hesitancy

The French industrial sector struggles with renewed crisis fears and cautious investment behavior. Companies delay capital expenditures and technology upgrades due to uncertain policies, risking long-term competitiveness and innovation capacity in key manufacturing and aerospace industries.

Declining Foreign Debt and Fiscal Management

Indonesia's external debt decreased to US$424.4 billion in Q3 2025, with slower growth in public sector debt and contraction in private foreign debt. This trend reflects cautious fiscal management amid global financial uncertainties, influencing sovereign credit risk and foreign investor perceptions.

Western Sanctions and Reserve Asset Diversification

Western sanctions have frozen significant Russian reserves in dollars and euros, prompting the Central Bank of Russia to diversify reserves into gold and yuan. This shift aims to mitigate financial risks but signals ongoing geopolitical tensions, affecting Russia's currency stability and complicating international financial transactions.

Industrial Diversification and Manufacturing Growth

Saudi Arabia's manufacturing sector, valued at $90 billion, is expanding under Vision 2030 and the National Industrial Development and Logistics Program. Emphasis on local content, automation, and smart manufacturing is reducing import dependence and fostering export-oriented industrial clusters, enhancing competitiveness in regional and global markets.

Foreign Investment Interest in Steel Sector

Foreign investors from Europe, China, and Vietnam show strong interest in Indonesia's steel industry, seeking to establish local production facilities to comply with regulations and tap domestic and export markets. However, domestic steel utilization remains low due to competition from imports, highlighting challenges and opportunities in industrial policy and investment climate.

US-Thailand Trade Negotiations Amid Border Disputes

Ongoing border conflicts with Cambodia risk derailing critical US-Thailand trade talks, as the US pressures Thailand to recommit to ceasefire agreements. The dispute threatens to stall trade negotiations, impacting Thailand's largest export market and creating geopolitical risks that could undermine economic stability and investor sentiment.

Credit Rating Upgrades and Market Optimism

Recent upgrades by S&P Global and removal from the FATF grey list have boosted market sentiment, leading to a strong rally in equities, bonds, and the rand. This improved credit profile enhances South Africa’s attractiveness to investors, though sustained economic growth and job creation remain critical to maintaining momentum and justifying valuations.

US-Thailand Trade Negotiations Stability

Despite political uncertainties and potential parliamentary dissolution, Thailand's government affirms that trade negotiations with the US and economic agendas will proceed uninterrupted. The caretaker government is expected to maintain momentum on key policies, including free-trade agreements and bilateral deals, ensuring continuity in Thailand's efforts to enhance competitiveness and expand market access amid geopolitical challenges.

Capital Flight and Fiscal Concerns

Significant capital outflows, with Canadian investors favoring U.S. securities, signal waning confidence in domestic fiscal and economic policies. High deficits, regulatory burdens, and interprovincial trade barriers exacerbate concerns about Canada's long-term fiscal stability and competitiveness, potentially deterring investment and slowing economic momentum.

Impact of Cybersecurity Incidents on Supply Chains

A severe cyberattack on Jaguar Land Rover disrupted automotive production, causing a 25% drop in output and contributing to GDP contraction. Such incidents highlight vulnerabilities in supply chains, emphasizing the need for robust cybersecurity measures to maintain operational continuity and investor confidence.

Inflation and Cost of Living Crisis

Iran is experiencing severe inflation, with food prices soaring over 66% annually, and broad consumer goods inflation exceeding 40%. This inflationary pressure erodes purchasing power, increases operational costs, and fuels social unrest risks. The government’s subsidy reforms, including gasoline price hikes, aim to curb fiscal deficits but may exacerbate public discontent and economic instability.

China Trade Deficit Crisis

Germany confronts a record €87 billion trade deficit with China, reflecting a deteriorating industrial relationship. German exports to China have fallen sharply, while imports rise, especially in automotive sectors. This shift challenges Germany's export-driven economy and complicates geopolitical ties, necessitating urgent policy reassessment and strategic engagement with Beijing.

Dependence on Chinese Critical Raw Materials

Germany's reliance on China for critical raw materials, especially rare earth elements essential for automotive and technology sectors, poses significant supply chain risks. China's export controls have already disrupted German industries, prompting calls for diversification and strategic stockpiling to mitigate vulnerabilities in key industrial inputs.

Taxation and Fiscal Policy Challenges

The 2026 budget debates foresee substantial tax increases on businesses amid high public debt and deficits. Rising tax burdens risk discouraging investment and industrial activity, while fiscal consolidation pressures create tensions between government goals and business interests.

Persistent Weak Korean Won

South Korea is experiencing a sustained period of a weak won, with forecasts indicating exchange rates above 1,400 won per dollar through 2026. This structural currency depreciation, driven by increased outbound investments and limited catalysts for appreciation, undermines export competitiveness and raises import costs, negatively impacting corporate profit margins and domestic consumption.

Russia's Rebounding Influence in Asia

Russia's comprehensive power in Asia is improving, driven by defense and economic partnerships with China and North Korea. Trade with China surged to $244 billion in 2024, representing 35% of Russia's global trade. This resurgence enhances Russia's geopolitical leverage in Asia, influencing regional economic and security dynamics relevant to investors and policymakers.

Escalating German Investments in China

Despite warnings, German companies increased investments in China by €1.3 billion between 2023 and 2024, totaling €5.7 billion. Automotive and chemical sectors lead this surge, deepening economic dependence on China. This raises concerns over political leverage Beijing may exert on Germany and the EU, complicating efforts to diversify supply chains and mitigate geopolitical risks.

Thailand-Cambodia Border Conflict Impact

Renewed clashes along the Thailand-Cambodia border threaten economic stability, risking a 130 billion baht loss in exports and disrupting labor supply with up to 500,000 Cambodian workers previously employed in Thailand. Tourism and border trade suffer, potentially reducing GDP by 100 billion baht. However, ongoing US-Thailand trade negotiations remain unaffected, underscoring resilience in bilateral economic ties.

Sanctions Impact on Russia-China Oil Trade

Expanding US and EU sanctions on Chinese ports and refiners have disrupted Russian oil flows to China, the world's largest importer. State-owned and private refiners are cautious, leading to reduced imports and a glut of discounted Russian crude. This dynamic pressures Russia's energy revenues and complicates supply chains in global energy markets.

Industrial Competitiveness and Supply Chain Reshaping

Leveraging its strategic location and abundant resources, Saudi Arabia is becoming a key player in global supply chain reorganization. The Kingdom focuses on regional industrial clusters, advanced manufacturing, mining, and petrochemicals, supported by infrastructure mega-projects and digital technologies, enhancing its industrial competitiveness and export potential in a shifting global economic landscape.

Stock Market Resilience and Investment Opportunities

Mexico’s S&P/BMV IPC index reached historic highs driven by robust corporate earnings and favorable external conditions. Key sectors include mining, consumption, infrastructure, and financial services. Strategic investments in companies like Grupo México and FEMSA reflect confidence in export-oriented and domestic consumption sectors, influencing portfolio allocations and capital inflows.

Production Re-positioning and Supply Chain Realignment

Global supply chain shifts and G7 near-shoring policies are driving production re-positioning towards Vietnam. Despite global FDI contraction, Vietnam benefits from regional manufacturing relocation, especially in electronics, medical equipment, and renewable energy sectors. This presents opportunities and challenges for Vietnam to meet high-tech industry standards and deepen domestic value addition.

Foreign Exchange Market Growth

Turkey's foreign exchange market is expanding rapidly, projected to reach $24.68 billion by 2033 with an 8.23% CAGR. Growth is fueled by robust tourism, services surplus, and booming e-commerce exports, enhancing foreign currency inflows and market liquidity critical for trade and investment.

Government Market Support and Political Influence

The South Korean government actively promotes stock market growth, targeting a KOSPI index of 5,000. Political parties politicize market movements, and officials have controversially endorsed leveraged investing. While aiming to channel capital from real estate to equities, such interventions risk inflating valuations and encouraging speculative behavior, complicating market stability.