Mission Grey Daily Brief - February 14, 2025

Summary of the Global Situation for Businesses and Investors

The global situation is currently dominated by the potential peace talks between the US and Russia to end the war in Ukraine, which has approached its third anniversary. The US Defense Secretary Pete Hegseth has suggested that Ukraine should abandon its hopes of joining NATO and reclaiming all its occupied territory. This has caused concern among European allies, who are wondering how they can maintain post-WWII security and fill the gap in security assistance that the Biden administration provided to Ukraine. Meanwhile, Turkey's president has arrived in Pakistan to boost trade and economic ties, and Ireland is using its relationship with the US to talk down the prospect of a trade war with the EU. Lastly, the US hostage envoy Boehler has stated that Iran is holding American hostages, which has not impacted stocks.

Potential Peace Talks Between the US and Russia

The potential peace talks between the US and Russia to end the war in Ukraine have caused concern among European allies, who are wondering how they can maintain post-WWII security and fill the gap in security assistance that the Biden administration provided to Ukraine. The US Defense Secretary Pete Hegseth has suggested that Ukraine should abandon its hopes of joining NATO and reclaiming all its occupied territory. This has signalled to Kyiv that the administration's view of a potential settlement is remarkably close to Moscow's vision. Putin has declared that any peace deal must ensure that Ukraine gives up its NATO ambitions and withdraws its troops from the four regions that Russia annexed in September 2022 but never fully captured. Hegseth has indicated that Trump is determined to get Europe to assume most of the financial and military responsibilities for the defense of Ukraine, including a possible peacekeeping force that would not include US troops. Hegseth has also insisted that NATO should play no role in any future military mission to police the peace in Ukraine and that any peacekeeping troops should not be covered by the part of NATO's founding treaty that obliges all allies to come to the aid of any member under attack.

Vice President JD Vance and Secretary of State Marco Rubio are expected to meet Ukrainian President Volodymyr Zelenskyy on Friday for talks that many hope will shed light on Trump's ideas for a negotiated settlement to the war. Trump has been vague about his specific intentions, other than suggesting that a deal will likely result in Ukraine being forced to cede territory that Russia has seized since it annexed Crimea in 2014. Trump has been highly skeptical of that aid and is expected to cut or otherwise limit it as negotiations get underway in the coming days.

Turkey-Pakistan Trade and Economic Ties

Turkey's president has arrived in Pakistan to boost trade and economic ties, and the two countries are expected to sign a number of agreements during the 7th Session of the Pakistan-Turkiye High Level Strategic Cooperation Council (HLSCC). Pakistan and Turkey are bound by historic fraternal ties, and the visit by Erdogan is expected to serve to further deepen the brotherly relations and enhance multifaceted cooperation between the two countries. Pakistan has witnessed a surge in militant violence in recent months, and has deployed additional police officers and paramilitary forces to ensure the security of the Turkish leader and his delegation. The visit comes hours after the U.S. Embassy issued a travel advisory, citing a threat by Pakistani Taliban against the Faisal mosque in Islamabad and asked its citizens to avoid visits to the mosque and nearby areas until further notice.

Potential Trade War Between the EU and the US

Ireland is using its relationship with the US to talk down the prospect of a trade war with the EU. Irish ministers have pushed for reaching a compromise that would avoid tariffs and a trade war and are sending nine government members to US cities for St Patrick’s Day as part of a charm offensive. Irish Finance Minister Paschal Donohoe has said that the EU-US trading relationship has made both of those economies richer over time and a trading dispute will cause harm to all. Mr Donohoe has said that Ireland will be using its voice to highlight what is of benefit to Ireland and Europe, and will be using its voice to make the case for trade to be mutually beneficial, talking about how Irish companies are employing Americans and investing in America. Mr Trump has expressed dissatisfaction with the amount of US goods bought by the EU compared to EU goods bought by the US. As he imposed since-suspended tariffs on Mexico and Canada, Mr Trump said of the EU: "They don’t take our cars, they don’t take our farm products, they take almost nothing and we take everything from them." Ireland’s deputy premier and foreign affairs minister Simon Harris has said that there are opportunities for the EU and Ireland to do more business and more trade with the United States, and therefore address some of the deficit that exists in relation to goods. Mr Donohoe, who is president of the group of eurozone finance ministers, has said that balancing trade with the US in more natural ways could be considered.

Iran Holding American Hostages

The US hostage envoy Boehler has stated that Iran is holding American hostages, which has not impacted stocks. The NASDAQ index is now up 21.46 points or 0.11%, while the S&P index is still down -0.14%, the Dow is down -0.35%, and the Russell 2000 of small cap stocks are down -0.62%. The comments of Trump's talk with Putin have helped to push the US stocks off lows (and the Nasdaq into positive territory), and the US-Russia relationship is thawing following a phone call and potential meeting, along with a prisoner swap announced Tuesday.

Themes around the World:

Global Economic Interconnectedness and US Market Risks

The UK market remains sensitive to US stock market instability due to interconnected financial systems. Potential US market corrections could spill over into UK markets, affecting investor sentiment and prompting defensive investment strategies, underscoring the importance of diversification and risk management in portfolios.

Financial Markets Resilience and Reform

Despite global uncertainties, South Africa's financial markets have shown resilience, with the Johannesburg Stock Exchange outperforming many global indices. Market optimism is underpinned by fiscal reforms, improved macroeconomic fundamentals, and a recovering IPO pipeline, signaling renewed investor appetite and potential for capital market growth.

Russian Ruble Vulnerabilities Amid Sanctions

The Russian ruble remains decoupled from market fundamentals due to sanctions, yet underlying economic pressures forecast steady depreciation. Tight monetary policy, falling export revenues, and domestic financial stress contribute to currency weakness, complicating trade and investment decisions. A weakening ruble increases import costs and inflationary pressures, impacting business operations and consumer purchasing power.

Currency and Inflation Dynamics

Germany’s inflation rates remain stable around 2.3% year-over-year, influencing the Euro’s strength against currencies like the British Pound. ECB’s cautious monetary stance amid political uncertainties and inflation management impacts trade competitiveness and investment decisions, with implications for cross-border business operations within the Eurozone.

Economic Growth and Investment Momentum

Post-ART, Malaysia recorded robust economic indicators: 5.2% GDP growth in Q3 2025 and a 13.2% year-on-year increase in approved investments (RM285.2 billion in 9M 2025). Foreign investments constitute 52.9%, reflecting strong investor confidence. The ART’s role in sustaining market access underpins this positive economic trajectory.

US-China Geopolitical Easing Boosts Markets

Easing geopolitical tensions between the US and China are improving global risk appetite, supporting a rebound in Thailand's equity market. This environment encourages investment inflows, benefiting consumption-linked sectors, infrastructure, and technology stocks, thereby enhancing Thailand's attractiveness for international investors and stabilizing supply chains dependent on regional trade dynamics.

Corporate Governance Reforms and Activist Investor Impact

Activist investors have challenged entrenched chaebol governance practices, exposing the 'Korea discount' and pushing for improved shareholder rights and transparency. Recent reforms and increased retail investor participation are driving changes in corporate behavior, potentially enhancing market valuations and attracting foreign capital, but also requiring sustained regulatory support.

Tech Stock Volatility and Funding Market Risks

Recent sharp declines in US tech stocks mask deeper risks in US dollar funding markets. Tightening liquidity and rising repo rates strain hedge funds and foreign banks reliant on dollar funding. Elevated leverage and large short Treasury positions raise concerns about forced asset sales and market destabilization, posing systemic risks beyond equity market corrections.

Legal and Regulatory Compliance Assurance

The ART underwent thorough vetting by Malaysia's Attorney General’s Chambers and involved multiple ministries and agencies to ensure alignment with domestic laws and regulations. This comprehensive review process affirms Malaysia's commitment to uphold national legal frameworks while engaging in international trade agreements.

Currency Volatility Risks

Turkish companies rank currency exchange rate fluctuations as their top risk, causing significant financial losses (73.3%). This volatility impacts investment decisions, cost structures, and supply chain pricing, necessitating robust risk management strategies for foreign investors and multinational firms operating in Turkey.

Banking Sector Credit Outlook

Fitch upgraded the credit outlook for leading Israeli banks from negative to stable, maintaining an A- rating. This signals recovery from wartime disruptions and reduced financial sector risks. Stability in banking supports credit availability, investor trust, and overall economic normalization, crucial for business operations and capital flows.

U.S. Political and Economic Policy Uncertainty

Prolonged political gridlock, tariff unpredictability, and shifting economic policies under the Trump administration have heightened uncertainty. This undermines confidence in U.S. creditworthiness and complicates long-term investment planning. The weaponization of trade policy and potential Supreme Court rulings on tariffs add layers of risk, affecting global supply chains, cross-border investments, and the dollar’s reserve currency status.

Non-Oil Sector Growth and Private Sector Expansion

The non-oil private sector in Saudi Arabia is experiencing robust growth, with PMI reaching 60.2 in October 2025. Rising demand, hiring, and business confidence reflect successful diversification efforts. Government initiatives and mega-projects have empowered local companies, increased exports, and reduced oil dependency, strengthening economic resilience.

Expanding Capital Market Participation

The number of Indonesian capital market investors reached over 19 million by October 2025, with a 58.4% increase in new investors compared to 2024. This surge, driven by younger demographics and extensive financial literacy programs, broadens domestic investment base and deepens market resilience, impacting long-term capital formation and economic diversification.

Robust Performance of Key Stock Market Sectors

In 2025, Brazil’s stock market surged 28%, led by real estate, essential services, and banking sectors. These sectors benefit from high liquidity, resilience to elevated interest rates, and expectations of rate cuts. Conversely, export-dependent sectors like agribusiness and basic materials underperformed due to currency appreciation and commodity price declines, affecting portfolio allocation strategies.

Federal Reserve Financial Stability Concerns

The Federal Reserve highlights elevated asset valuations and high leverage in nonbank financial institutions as leading financial stability risks. Market optimism and policy uncertainty, including geopolitical risks, contribute to potential volatility. While banks remain resilient, increased leverage in hedge funds and insurers could amplify shocks, necessitating vigilance amid ongoing government shutdown and economic data delays.

Fiscal Consolidation and Economic Outlook

South Africa's Medium-Term Budget Policy Statement projects a modest economic growth of 1.2% in 2025, with hopes pinned on structural reforms in energy and logistics. Improved fiscal discipline, stronger revenue collections, and restrained government spending signal a turning point, enhancing investor confidence and potentially leading to sovereign credit rating upgrades.

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.

Tariff Reduction and Export Protection

The ART reduces US tariffs on Malaysian exports from 25% to 19%, the lowest among ASEAN countries with US trade surpluses. It exempts 1,711 tariff lines protecting RM22 billion in exports, including palm oil, rubber, aerospace, and pharmaceuticals. This tariff relief safeguards thousands of jobs and sustains Malaysia’s export competitiveness in critical sectors.

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.

Rupiah Redenomination Debate

The Indonesian government's plan to redenominate the rupiah faces criticism from economists who question its economic benefits and highlight potential costs. Concerns include lack of impact on productivity or growth, risks of resource misallocation, and the need to prioritize fundamental economic reforms over symbolic currency changes.

Corporate Governance Reforms and Activist Influence

Activist investors and increased retail participation are pressuring South Korean firms to improve governance, transparency, and shareholder returns. Historical governance issues linked to chaebol structures have suppressed valuations. Recent reforms and foreign investor activism aim to align minority and controlling shareholders, potentially unlocking market value and attracting foreign investment.

International Trade and Regional Integration

South Africans broadly support open trade and greater African representation in global affairs. The government is leveraging the African Continental Free Trade Area (AfCFTA) to enhance intra-African trade and economic cooperation, aiming to offset external trade challenges such as tariffs from major partners and to diversify export markets.

Geopolitical Realignment and Trade Diversification

Brazil is strategically deepening ties with China and Russia to reduce dependence on the U.S., driven by U.S. tariffs and a desire for greater autonomy. This shift includes military cooperation, energy diplomacy, and stronger BRICS alignment, potentially reshaping regional power balances and affecting trade flows and investment patterns globally.

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.

Chinese Firms' Performance in Europe

Despite rising trade barriers and political tensions, most Chinese companies in the EU report stable or improved performance, with increased localization and investment in Eastern Europe. The evolving China-EU economic relationship reflects a shift from complementary interdependence to strategic co-shaping, though concerns over politicization and supply chain risks persist among European stakeholders.

China’s Rare Earth Export Controls

China’s tightening of rare earth export controls threatens European manufacturing and technology sectors reliant on critical minerals for EVs, defense, and clean energy. With China dominating 80% of global rare earth supply, these restrictions heighten supply chain vulnerabilities, escalate trade tensions, and compel Europe to accelerate domestic sourcing and diversify supply chains.

Israel's Semiconductor Sector Innovation

Israel's semiconductor industry, characterized by a 'Two-Engine Paradox' of agile startups and multinational R&D hubs, sustains global chip innovation with venture capital investments thrice the national average. This sector is critical amid global supply chain shifts and rising demand for AI and computing infrastructure, positioning Israel as a key player in the global technology ecosystem.

Stable Outlook for Taiwan's Insurance Sector

Taiwan's non-life insurance industry maintains a stable outlook with robust premium growth and profitability, supported by steady economic conditions and regulatory improvements. However, exposure to natural disasters and global market volatility requires ongoing risk management for investors.

Taiwan's Civil Preparedness Amid Rising Tensions

Taiwan has issued a comprehensive citizen emergency handbook addressing preparations for natural disasters and potential Chinese invasion scenarios. This initiative reflects heightened security concerns, emphasizing civilian readiness, misinformation countermeasures, and national defense resilience in the face of escalating cross-strait tensions.

Trade Diversification and Strategic Partnerships

Despite the ART, Malaysia maintains freedom to engage with other countries, including China and South Korea, in sectors like rare earth elements and semiconductors. The government stresses balanced foreign relations to attract diverse investments and avoid overdependence on any single partner, ensuring economic resilience and strategic autonomy.

Stock Market Sector Dynamics

In 2025, Brazil's Ibovespa surged 28%, led by real estate, essential services, and banking sectors benefiting from expected interest rate cuts and foreign inflows. Conversely, agribusiness and basic materials sectors underperformed due to a stronger real and lower commodity prices. These sectoral shifts influence portfolio strategies and capital allocation decisions.

Stock Market Rally and Investment Opportunities

Japanese equities, including the Nikkei 225, are reaching multi-decade highs driven by strong earnings growth, corporate governance reforms, and a weak yen benefiting exporters. This bullish trend attracts global investors seeking diversification and growth, influencing capital inflows and market valuations.

China's Clean Energy Industrial Dominance

China leads global clean energy markets, controlling over 80% of solar manufacturing and dominating electric vehicle and battery production. This industrial scale drives down costs globally, reshaping trade flows and investment strategies. However, internal overcapacity and grid challenges pose risks, while China's clean energy leadership influences commodity demand and infrastructure financing worldwide.

Media Freedom and Political Risks

Turkey's media environment remains constrained with significant government influence, regulatory pressures, and risks to journalistic freedom. This environment poses reputational and operational risks for businesses, potentially affecting transparency and information flow critical for market confidence and foreign investment decisions.

Structural Reforms in Energy and Logistics

Ongoing structural reforms targeting energy and logistics sectors are critical to unlocking South Africa's growth potential. Improvements in state-owned enterprises like Eskom and Transnet aim to reduce operational inefficiencies, support infrastructure development, and enhance supply chain reliability, which are essential for attracting investment and boosting industrial productivity.