Currency Instability and Inflation

Turkey’s lira has fallen to record lows near 45 per dollar while April inflation accelerated to 32.37% year on year and 4.18% month on month, raising import costs, pricing volatility, wage pressure, and hedging needs for foreign investors and supply chains.

China Commercial Risk Repricing

Recent policy moves, including punitive steel tariffs and coordinated concern over export restrictions on critical minerals, signal firmer Australian positioning toward China-linked market distortions. Companies should expect greater geopolitical screening of supply chains, sourcing concentration, and exposure to coercive trade practices.

US-China Trade Truce Fragility

Beijing and Washington are negotiating only limited stability measures as tariffs, Section 301 probes and retaliatory actions remain active. With bilateral goods trade down 29% to $415 billion in 2025, firms should expect renewed tariff volatility, compliance costs and demand re-routing.

Cross-Strait Security Escalation Risk

Chinese military pressure remains elevated, with 22 PLA aircraft and six vessels detected near Taiwan on May 7 and repeated median-line crossings. Any blockade, cyber disruption or conflict would immediately threaten shipping, insurance costs, technology exports and regional business continuity.

Investment Rules Tighten Localization

New BOI requirements emphasize electricity and water efficiency, proof of power availability, and concrete domestic benefits such as skills development, SME support, or local supply-chain contributions. Foreign investors will face more conditional incentives and stronger expectations for local economic spillovers.

Investment incentives and tax overhaul

Parliament is advancing a package offering 20-year tax exemptions on qualifying foreign income, deep incentives for the Istanbul Financial Center, and lower corporate taxes for exporters. The measures could improve Turkey’s appeal for headquarters, transit trade, and export-platform investments.

High-Tech FDI Upgrading Supply Chains

Vietnam remains a major diversification hub as FDI shifts toward semiconductors, electronics, AI, data centres and advanced manufacturing. Registered FDI reached US$15.2 billion in Q1 2026, up 42.9% year on year, supporting deeper integration into higher-value global supply chains.

Fuel Inflation and Rate Risk

South Africa’s import dependence leaves businesses exposed to oil shocks and tighter monetary conditions. Petrol rose 14% to 26.63 rand per litre and diesel above 30 rand, increasing transport and food costs while raising the risk of prolonged high interest rates.

Aggressive Foreign Investment Incentives

Ankara has submitted a broad incentive package to attract capital, including 20-year tax exemptions on certain foreign-source income, 100% tax breaks in the Istanbul Financial Center and lower corporate tax for exporters. This could improve project economics but raises implementation-watch needs.

Energy Security and Cost Pressures

Middle East conflict is raising freight and input risks for an import-dependent economy. KDI lifted inflation forecasts to 2.7%, while officials warned a Hormuz disruption could raise production costs economy-wide, pressuring manufacturers, transport operators, and energy-intensive supply chains.

Hormuz Disruption and Shipping Risk

Strait of Hormuz disruption is the dominant trade risk: roughly 20% of global seaborne crude and LNG normally transits it, while Iran depends on the route for over 90% of trade. Shipping, insurance, routing, and compliance costs have surged.

Energy Infrastructure Vulnerability

Repeated Russian strikes continue to disrupt power and gas systems, raising operating risk for industry and logistics. Reported energy-sector damage is around $25 billion, recovery may exceed $90 billion, and attacks have temporarily cut gas production by up to 60%.

China-Centric Trade Dependence

Russia’s economy has become more dependent on China for export demand, machinery, electronics and dual-use inputs, with more trade settled in yuan and rubles. This deepens geopolitical concentration risk for investors and complicates supply-chain diversification, pricing and payment resilience.

Foreign Exchange and Capital

External financing conditions have tightened again. Net foreign assets fell by $6.07 billion in March to $21.34 billion, while portfolio outflows and pound weakness have resurfaced, complicating profit repatriation, import planning, hedging strategies and hard-currency liquidity for multinationals.

Sanctions Tighten Oil Trade

U.S. pressure is expanding from Iranian tankers to Chinese refiners, terminals, banks, and exchange houses. With China absorbing roughly 80–99% of tracked Iranian oil sales, counterparties across shipping, payments, and commodities face heightened secondary-sanctions and compliance exposure.

Shipbuilding and LNG Expansion

Korean shipbuilders are winning major LNG, ammonia-carrier, gas-carrier, and FSRU orders while the government deepens shipbuilding-shipping coordination. This strengthens Korea’s role in maritime energy infrastructure, benefiting export earnings, industrial suppliers, port logistics, and long-cycle manufacturing investment.

Tax and VAT Rules Shift

Recent tax changes, including revised VAT rules effective June 20, 2026, alter exemptions, deductions and treatment of selected financial and export activities. Companies should reassess invoicing, payment documentation, mineral exports and transaction structures to avoid compliance gaps and cash-flow inefficiencies.

Semiconductor Manufacturing Push Expands

India approved two additional chip-related projects worth $414 million, taking planned semiconductor facilities to 12 and total commitments to about $17.2 billion. This deepens localization prospects for electronics, automotive and industrial supply chains, though execution risk remains material.

Logistics Corridors Are Reordering

Trade routes linked to Russia are being rerouted by sanctions and wider regional insecurity. Rail freight between China and Europe via Russia, Kazakhstan and Belarus rose 45% year on year in March, offering transit opportunities but carrying elevated legal, payment and reputational risks.

Rising Input Cost Pressures

Saudi non-oil firms reported the sharpest cost increases in nearly 17 years, driven by higher raw-material and transport expenses amid shipping disruption. Businesses should expect tighter margins, inventory buffering and greater emphasis on pricing strategy, freight planning and supplier diversification.

Security and cargo risks

Organized crime, extortion, cargo theft, and corruption continue raising operating costs across industrial corridors. Business groups warn insecurity and weak rule enforcement are delaying projects, increasing insurance and logistics expenses, and undermining confidence in regional supply-chain resilience.

Fiscal stress and sovereign risk

S&P revised Mexico’s outlook to negative while affirming investment grade, citing weak growth, slow fiscal consolidation, and continued support for Pemex and CFE. It expects a 4.8% deficit in 2026 and net public debt near 54% of GDP by 2029.

Judicial Reform and Legal Certainty

Business confidence is being weakened by judicial reform and wider concerns over contract enforcement, changing legal interpretations and institutional discretion. Investors increasingly cite legal uncertainty as a reason to delay, scale back or redirect long-term manufacturing and logistics commitments.

Immigration Crackdown Tightens Labor

Stricter immigration enforcement has removed roughly 1.2 million foreign-born workers from the labor force, with knock-on job losses for U.S.-born workers in construction, agriculture, and manufacturing. Labor scarcity can delay projects, raise operating costs, and constrain expansion in labor-intensive sectors.

Currency Collapse Fuels Inflation

The rial has fallen to a record 1.8 million per US dollar, intensifying inflation in an import-dependent economy. Rising prices for food, medicines, detergents, and industrial inputs are pressuring margins, household demand, and payment certainty for foreign suppliers.

Fiscal Stabilization Supports Investor Confidence

Moody’s says government debt may have peaked at 86.8% of GDP in 2025, while deficits are expected to narrow gradually. The stable Ba2 outlook supports capital-market sentiment, but high interest costs, weak growth and coalition politics still constrain fiscal flexibility and policy execution.

Logistics Expansion Reshapes Competitiveness

Large investments in expressways, ports, Long Thanh airport and new deep-sea facilities are improving cargo capacity and connectivity. Yet road dependence remains high, keeping costs elevated. Better multimodal links and digital logistics systems will materially affect delivery reliability, export margins and location decisions.

Sanctions Exposure Through Iran

US sanctions on Chinese refiners handling Iranian oil are creating new secondary-sanctions risk despite Beijing’s public resistance. Quiet lending restrictions by Chinese regulators show financial caution beneath official rhetoric, with implications for energy trading, shipping, banking relationships, and broader China-related compliance due diligence.

Industrial Policy Shifts Toward Security

South Korea is increasingly aligning trade, technology and investment policy with economic security priorities amid US-China rivalry, tariff pressure and supply-chain fragmentation. This favors trusted-partner manufacturing in chips, batteries, shipbuilding and defense, but raises compliance and strategic screening requirements.

Gas and Strategic Infrastructure Upside

Alongside technology, energy remains a medium-term opportunity area. Analysts expect significant investment in domestic renewables and expanded natural-gas production and export capacity in 2026-27, offering upside for infrastructure, regional energy trade, and service providers if security conditions remain broadly contained.

Domestic Demand Erosion and Labor Stress

Iran’s business environment is deteriorating as layoffs, shortages, and purchasing-power losses intensify. Reports indicate around two million direct and indirect job losses and rising factory dismissals, reducing market attractiveness, increasing social instability risks, and undermining partners’ operational resilience.

High Rates, Sticky Inflation

The central bank cut Selic to 14.50%, yet inflation expectations remain above target, with 2026 IPCA near 4.9%. High borrowing costs, cautious easing and volatile fuel prices will keep financing expensive, slowing investment while supporting the real and carry trades.

Foreign Firms Face Compliance Squeeze

Companies operating in China face growing tension between home-country sanctions, export controls, and Chinese anti-sanctions rules. The resulting compliance asymmetry increases board-level exposure, complicates internal controls, and may force difficult choices on market participation, suppliers, and partnerships.

State-Driven Substitution Intensifies

China is pressing domestic substitution in semiconductors and digital infrastructure, including reported requirements for at least 50% local equipment in new chip capacity and replacement of foreign AI chips in state-funded data centers. Foreign suppliers face shrinking addressable markets and localization pressure.

Suez Canal Disruption Risk

Red Sea and wider regional conflict continue to disrupt canal-linked trade flows. Although containership transits recovered to 56 in early May, the Cape route still dominates Asia-Europe shipping, while weaker canal income reduces Egypt’s external buffers and logistics-sector confidence.

US-China Trade Friction Escalates

US-China trade remains the dominant risk axis as Washington weighs new Section 301 and 232 tariffs and managed-trade carveouts. Bilateral goods trade fell 29% to $415 billion in 2025, creating persistent volatility for exporters, importers, pricing, and sourcing decisions.