Mission Grey Daily Brief - February 11, 2025

Summary of the Global Situation for Businesses and Investors

The global situation is currently characterised by a brutal conflict in the Democratic Republic of Congo, Trump's trade war, rising tensions in the Middle East, and China's demographic crisis. The conflict in the DRC has the potential to spiral into a wider regional war, impacting mineral-rich regions and displacing civilians. Trump's trade war has led to retaliation from China, with China's economy facing a quadruple blow despite a spending boom. Rising tensions in the Middle East, including a fragile ceasefire between Israel and Hamas, and Iran's threat to shut down the Strait of Hormuz, could have significant implications for global oil trade. China's demographic crisis, marked by a decline in marriages and a shrinking population, poses challenges for the country's long-term economic growth.

Conflict in the Democratic Republic of Congo

The Democratic Republic of Congo (DRC) is currently experiencing a brutal conflict that has the potential to spiral into a wider regional war. The conflict is centred around the eastern region of the country, which is rich in minerals and has never enjoyed much stability. The Rwanda-backed rebel group M23 has made significant advances in the region, seizing the capital of North Kivu state and moving south to expand its territory. The humanitarian consequences of the violence are profound, with sexual violence as a weapon of war, children forced to fight, and millions displaced. The conflict is the latest episode of a decades-long struggle in the region, with about 6 million people killed and more than 3 million displaced in the most recent fighting.

The DRC is a prime example of the "resource curse", where an abundance of raw materials leads to authoritarian regimes and civil wars. The country has approximately $24 trillion worth of natural resources, including cobalt, copper, niobium, tantalum, coltan, diamonds, gold, silver, zinc, manganese, tin, uranium, and coal. However, about a fifth of its population relies on aid to survive. The weak state institutions and corrupt governments have failed to benefit the people or invest in essential infrastructure.

The regional summit aimed at ending the violence ended with a call for an immediate and unconditional ceasefire. However, many fear that a ceasefire is less likely than escalation to a wider regional war. The fate of civilians in the region, who are frequently the subject of ethnically targeted attacks, is at stake.

Trump's Trade War

Trump's trade war has led to retaliation from China, with China's economy facing a quadruple blow despite a spending boom. The deflationary crisis in China is compounded by sluggish domestic consumption, an out-of-character production slump, and the recent imposition of tariffs from the United States. As the world's leading industrial manufacturer and top exporter of goods, the health of the Chinese economy has profound knock-on effects for global supply chains and markets.

If China remains trapped in its deflationary spiral, an influx of cut-price Chinese goods into global markets could create intense competitive pressures for global manufacturers. As the world's second-largest importer, a weakened Chinese economy could slash demand for foreign products and deprive exporters of a critical marketplace.

Trump has indicated that he is open to a deal and might not impose tariffs if countries agree to buy more US products, particularly its oil and gas. However, the seemingly ad hoc nature of Trump's announcements of tariffs has caused chaos, confusion, and some abrupt about-faces. The practical difficulties and costs of collecting duties from massive volumes of relatively low-value items have also been a major factor.

Rising Tensions in the Middle East

Rising tensions in the Middle East could have significant implications for global oil trade. A fragile ceasefire between Israel and Hamas is at risk, with Hamas accusing Israel of breaking parts of the agreement. Trump's proposed U.S. takeover of Gaza after the war has the potential to inflame tensions in the region.

Iran's armed forces have warned that they could shut down the Strait of Hormuz if ordered by top officials, a move that would disrupt global oil trade. The Strait of Hormuz is a vital waterway for global energy markets, handling about 20 percent of the world's oil trade. Any disruption could trigger a surge in oil prices and escalate tensions between Iran and Western nations.

China's Demographic Crisis

China is facing a demographic crisis, marked by a decline in marriages and a shrinking population. The number of marriages in China fell to 6.1 million last year, 20% lower than in 2023 and down by more than 50% since 2013. The marital malaise is part of a bigger demographic crisis facing China. Although China boasts the world's second-largest population, at 1.4 billion people, the country's population is declining.

Until 2015, the state enforced a "one-child" policy to avoid urban overcrowding. However, since then, the high costs of child care and education have stymied government efforts to encourage people to have children. The shrinking population poses challenges for the country's long-term economic growth and social stability.

Conclusion

The global situation is currently characterised by a brutal conflict in the Democratic Republic of Congo, Trump's trade war, rising tensions in the Middle East, and China's demographic crisis. These events have the potential to impact global supply chains, markets, and oil trade, as well as regional stability and social cohesion. Businesses and investors should closely monitor these developments and consider their potential impact on their operations and investments.

Themes around the World:

Surge in New Companies and Foreign Investment

Fiscal year 2024/25 saw a 21% increase in new company registrations, totaling 46,100 firms, creating 79,000 jobs. Foreign investment rose 10%, with significant contributions from China, Turkey, and Arab investors. This expansion underscores Egypt's growing attractiveness as a regional investment hub and its strategic role in Middle East reconstruction efforts, boosting economic diversification and employment.

Corporate Crypto Exposure and Regulatory Scrutiny

Japanese corporations holding significant digital asset positions face mounting losses amid volatile crypto markets. Regulatory bodies, including the Japan Exchange Group, are intensifying oversight on governance and risk management related to crypto holdings. This evolving regulatory landscape may reshape corporate strategies and investor confidence in Japan’s digital asset ecosystem.

Aviation Disruptions and Safety Concerns

U.S. airlines have canceled multiple routes to Mexico, citing regulatory issues, while incidents like the JetBlue emergency landing raise safety concerns. Reduced connectivity increases travel costs and logistical challenges for business and expatriate communities, potentially hindering tourism, supply chain efficiency, and cross-border business activities.

Vietnam's Economic Transformation and Integration

Since the 1986 Doi Moi reforms, Vietnam transitioned from a centrally planned economy to a dynamic socialist-oriented market economy. Sustained GDP growth of 6-7%, rising to a $510 billion economy by 2025, and integration into global trade networks through 17 FTAs have transformed Vietnam into a manufacturing powerhouse and export leader in agro-forestry-fisheries. Infrastructure modernization and rural development underpin this structural shift, boosting resilience and global competitiveness.

Banking Sector Risks Amid Rapid Credit Growth

Vietnam's banking sector is experiencing rapid lending growth, raising concerns about increased leverage and credit risks. Fitch Ratings warns that the planned removal of credit quotas could accelerate credit expansion, potentially heightening financial vulnerabilities. While the sector outlook remains neutral-to-positive, heightened scrutiny and risk management are essential to ensure stability amid aggressive loan growth and evolving regulatory frameworks.

US Sanctions Impact on Russian Oil Exports

Recent US sanctions targeting Rosneft and Lukoil have disrupted Russian oil exports, causing a drop to a three-month low in seaborne shipments. Increased freight costs and shipping risks challenge supply chains, while Russia relies on a 'shadow fleet' to maintain exports. These sanctions threaten Russia’s oil revenue and global energy market stability.

Trade Tensions and Tariffs Impact

Ongoing trade disputes with the U.S., including tariffs on steel, aluminum, automobiles, and lumber, are disrupting Canadian exports and supply chains. This uncertainty is dampening business investment and economic growth, forcing Canada to seek diversification of trade partners and adjust domestic policies to mitigate adverse effects on key industries.

China's Strategic Use of Rare Earths

China leverages its near-monopoly on rare earth elements as a geopolitical tool, influencing global supply chains critical to electric vehicles, defense, and technology sectors. Recent export restrictions and trade negotiations underscore China's capacity to use resource control as leverage in international trade disputes, impacting global manufacturing and strategic industries.

Rising Borrowing Costs and Global Investment Impact

Japan's borrowing rates have surged to a 30-year high, ending the era of ultra-low interest rates that supported the yen carry trade. This shift disrupts global investment flows, particularly affecting markets like India and the U.S., and signals inflationary pressures and tightening monetary policy domestically, with broad implications for global financial markets.

Agriculture Market Expansion

Egypt’s agriculture sector surpassed $43 billion in market size, driven by irrigation modernization, land reclamation, and agri-tech adoption. Export-oriented reforms and improved water management boost productivity and access to Middle Eastern, African, and European markets. This transformation enhances food security, rural employment, and value-added processing opportunities.

Military Readiness and Regional Security Posture

Iran has enhanced its military preparedness, particularly around the Persian Gulf and strategic islands, signaling readiness to counter potential aggression. This militarization amid regional tensions with the US and Israel elevates security risks for maritime trade routes, potentially disrupting supply chains and increasing insurance and operational costs for international businesses.

Oil Market Dynamics and Sanctions

Prospects of a Ukraine-Russia peace deal and partial sanction relaxations are pressuring oil prices downward amid an already oversupplied market. This dynamic affects global energy markets, Russian oil revenues, and the financing of the conflict, influencing investment strategies in energy sectors and commodity-dependent economies.

Economic Sovereignty and Knowledge Economy

Saudi Arabia is redefining wealth by shifting from oil rents to a knowledge-based economy emphasizing human capital, AI, digital technologies, and renewable energy. The Public Investment Fund plays a central role in this transition, fostering economic sovereignty through strategic investments and fiscal discipline, which underpin sustainable growth and reduce vulnerability to global market volatility.

Garment Industry Recovery Amid Challenges

Vietnam's textile and garment sector is rebounding with a 7.7% export growth in early 2025, yet faces challenges including high production and logistics costs, reliance on imported raw materials, and evolving trade policies such as US tariffs. The industry is shifting towards higher value-added products and expanding into new markets, but must address supply chain vulnerabilities and cost competitiveness to sustain growth.

Impact of Russian Invasion on Financial Stability

Following Russia's invasion, Ukraine's central bank imposed strict controls on cash withdrawals and foreign exchange transactions to stabilize the banking sector. These measures, including fixed exchange rates and suspended securities trading, aim to prevent financial collapse but signal heightened economic vulnerability, affecting investor risk assessments and operational liquidity for businesses.

Rising Foreign Asset Holdings and Domestic Investment Decline

South Korea’s foreign financial assets have surged to $2.7 trillion, over half of GDP, driven by current account surpluses and outbound investments. While enhancing external financial strength, this trend weakens domestic capital markets, depresses the won, and exposes the economy to global risks, potentially undermining long-term growth and productivity.

Commodity Market Influence on Financial Markets

Commodity prices, particularly oil and gold, continue to play a pivotal role in stabilizing Canadian equity markets amid global risk aversion. The resource-heavy TSX index is sensitive to fluctuations in commodity demand and prices, influencing investor sentiment and capital flows. This dynamic underscores Canada's economic dependence on natural resources and exposure to global commodity cycles.

Federal Reserve Policy Uncertainty

Divergent views among Federal Reserve officials on inflation persistence versus labor market weakness create uncertainty over interest rate trajectories. This discord influences market expectations for rate cuts, affecting equity valuations, borrowing costs, and investment timing decisions across sectors.

Currency Volatility Risks

Turkey's foremost business risk in 2025 is currency exchange rate volatility, impacting 73.3% of companies. This instability elevates operational costs and complicates financial planning, posing significant challenges for international trade and investment strategies. Managing currency risk is critical for sustaining business resilience amid economic uncertainties and geopolitical fluctuations.

Crypto Regulation and Enforcement

Turkish authorities have seized a major crypto asset company amid money laundering investigations involving nearly $770 million. This crackdown reflects increased regulatory scrutiny in Turkey's large cryptocurrency market, impacting fintech innovation, compliance requirements, and reputational risks for crypto-related businesses.

Start-up Ecosystem and Equity Funding Leadership

South Africa leads Africa in start-up equity funding, securing 30% of the continent's total equity investments in 2025. The mature investment environment, strong corporate participation, and sectoral strengths in fintech, healthcare, and deep tech position South Africa as a key innovation hub, attracting significant venture capital and fostering economic diversification.

Semiconductor Supply Chain Vulnerabilities

Despite Chinese rare earth export restrictions, Taiwan's semiconductor industry, led by TSMC, has diversified supply sources and buffers to mitigate immediate impacts. Nonetheless, geopolitical risks and potential Chinese military actions threaten the global semiconductor supply, underscoring the need for supply chain diversification.

Energy Reserves and Production Challenges

Indonesia holds substantial oil (4.4 billion barrels) and natural gas (55.85 BSCF) reserves, critical for energy security and economic development. However, coal production in 2025 fell short of targets by 21%, with exports declining due to fluctuating global demand and prices. Energy sector dynamics influence trade balances, investment flows, and industrial growth prospects.

Bank of Japan Monetary Policy Challenges

The Bank of Japan (BoJ) faces a delicate balancing act amid economic contraction and inflationary pressures. With ultra-loose monetary policy being gradually unwound, the BoJ must coordinate with fiscal stimulus efforts to avoid policy friction. Interest rate decisions heavily influence yen volatility, investor sentiment, and Japan’s ability to attract foreign investment, impacting overall economic recovery prospects.

Stock Market Reforms and Emerging Market Status

Vietnam's stock market is undergoing reforms to attract foreign investors, including easing foreign ownership limits and enhancing transparency. The anticipated upgrade to Emerging Market status by FTSE Russell in 2026 is expected to increase capital inflows. Despite recent foreign net selling, regulatory changes and improved market accessibility aim to stimulate liquidity and investor confidence, positioning Vietnam as a more attractive destination for international portfolio investment.

Political Influence on Market Narratives

The KOSPI index has become a political battleground, with ruling and opposition parties framing market movements to support their agendas. Government officials promote stock market growth targets, such as the 'Kospi 5000' goal, while downplaying downturns. This politicization risks distorting market perceptions and influencing investor behavior, potentially adding to volatility.

EU Integration and Reform Challenges

Ukraine's EU accession process shows progress but is hindered by persistent issues in anti-corruption enforcement, judicial independence, and public sector transparency. Delays and political resistance to reforms risk slowing integration, affecting investor confidence and access to EU markets and financial support.

Manufacturing and Industrial Diversification

The manufacturing sector, valued at $90 billion and growing under Vision 2030, is shifting from import dependence to localized, export-oriented production. Government initiatives like the National Industrial Development and Logistics Program promote advanced manufacturing, automation, and local content, driving industrial growth and supply chain modernization across key sectors.

Illegal Cryptocurrency Mining Crisis

Approximately 95% of Iran's 427,000 crypto mining rigs operate illegally, exploiting subsidized electricity and straining the national power grid. Authorities' crackdown aims to regulate the sector, but widespread illicit activity risks energy shortages and infrastructure instability, complicating economic management and raising concerns for foreign investors in energy and technology sectors.

Rare Earth Minerals as Strategic Resources

Brazil emerges as a potential alternative supplier of rare earth elements amid China’s export restrictions. Rich deposits, particularly in Minas Gerais, attract foreign investment, but infrastructure and processing capabilities lag. Environmental concerns and political uncertainties pose risks to Brazil’s ambition to become a reliable global supplier.

Economic Growth Challenges and Stimulus

Thailand's economic growth slowed sharply in Q3 2025 due to weak private consumption and high household debt, despite strong export performance, particularly in electronics and semiconductors. The government is implementing stimulus measures, including consumer subsidies and debt buybacks, to support recovery, but structural reforms and political stability remain critical for sustained growth.

Currency Exchange Rate Dynamics

The Pakistani rupee exhibits fluctuations against major currencies, with recent modest strengthening against the US dollar. Exchange rate volatility impacts import costs, export competitiveness, and inflation, necessitating careful central bank interventions to stabilize the currency and maintain investor confidence amid external vulnerabilities.

Global Financial Influence of Beijing's Financial Street

Beijing's Financial Street has expanded its global role in financial regulation, asset management, and international cooperation, highlighted by the 2025 Financial Street Forum. Initiatives include AI application guidelines in finance, green finance development, and Belt and Road investment facilitation, enhancing China's influence over global financial markets and supporting real economy financing.

Shifts in Global Economic Order and Investment Strategies

The global economic landscape is fragmenting with rising trade barriers and geopolitical risks. Investors are pivoting towards regional diversification, resilient sectors, and alternative assets to mitigate disruptions from tariffs, technology restrictions, and supply chain vulnerabilities, reshaping international investment approaches.

Currency and Commodity Market Fluctuations

US dollar fluctuations amid cautious risk sentiment and geopolitical tensions affect global trade competitiveness. Gold's atypical price behavior challenges its safe-haven status, while Asian currencies show mixed performance. These currency and commodity market volatilities influence import-export costs, supply chain pricing, and investment flows, requiring strategic hedging and financial risk management for US businesses.

Foreign Exchange Market Growth

Turkey's foreign exchange market is projected to grow from $11.19 billion in 2024 to $24.68 billion by 2033, driven by tourism, services surplus, and booming e-commerce exports. Enhanced digital payment platforms and fintech adoption facilitate SME participation in international trade, improving market liquidity and reducing reliance on volatile capital flows.