EU and Vietnamese flags are seen during the signing ceremony of a trade agreement in Hanoi last year. On Monday, the deal was ratified by the Vietnam National Assembly. Reuters
EU and Vietnamese flags are seen during the signing ceremony of a trade agreement in Hanoi last year. On Monday, the deal was ratified by the Vietnam National Assembly. Reuters
EU and Vietnamese flags are seen during the signing ceremony of a trade agreement in Hanoi last year. On Monday, the deal was ratified by the Vietnam National Assembly. Reuters
Until recently, globalisation looked unstoppable and was generally thought to have worked best for the East. A 2016 paper produced by the Brookings Institution, the American think tank, was titled simply: Globalisation: What the West can learn from Asia. As it put it, "worldwide investment flows, knowledge exchanges, and rapid economic growth" have led to the emergence of large middle classes and brought hundreds of millions on the continent out of poverty. The formula has been a success. Who wouldn't want to continue down the same route.
Today, however, trade and connectivity in Asia appear to many to be fracturing and faltering. The US-China trade war has been damaging for everyone, and America has a President who cannot be trusted not to escalate it on a whim. Country after country has, overtly or covertly, decided that they are far too reliant on China, either for their supply chains, production lines or essential products, such as medicines. That, coupled with the resurgent nationalists who emphasise self-reliance as a good in itself that overrides any concerns about efficiencies or competitive advantages, is bound to lead to a further reduction in international commerce.
The much-vaunted Trans-Pacific Partnership (TPP) that would have represented 40 per cent of global GDP and one third of world trade may not have actually collapsed, even though Donald Trump withdrew the US from the agreement in one of the first acts of his Presidency. But it has now been reduced to the – rather wordy – Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP); it covers less than 14 per cent of the global economy; and out of 11 signatories, only seven have ratified it so far.
A gift shop salesperson sets cardboards depicting US President Donald Trump, left, and Chinese President Xi Jinping in Moscow. EPA
The other great regional trade pact, the Regional Comprehensive Economic Partnership (RCEP), includes China – unlike the TPP, which some thought was designed specifically to exclude it. It has been on the verge of being signed for at least two years. It is still expected to be agreed later this year, but the parties have managed to lose India along the way, which means that instead of accounting for around 50 per cent of the world's population and 40 per cent of global GDP, it will cover about 30 per cent of each.
A notable infrastructure project – the high-speed rail link between Singapore and Kuala Lumpur –has been put on hold by the Malaysian government, while The Economist – never a friend to China's leadership – was mean-spirited in its reporting this week on the state of President Xi Jinping's signature global infrastructure and development Belt and Road Initiative. "BRI projects are stalling as countries struggle to repay related debts," the magazine declared. "China's own economy is faltering, too. Silk roads are getting bumpier."
Added together, the above may appear to compose a rather gloomy picture. It is, however, more complex than that.
Narendra Modi's India is staying away from the Regional Comprehensive Economic Partnership – for now. Reuters
The 15 countries in RCEP – the 10-member Association of South-East Asian Nations, plus China, Japan, South Korea, Australia and New Zealand – have been aggressively courting India to return to negotiations.
The Democratic presidential candidate, Joe Biden, urged support for the TPP when he was Barack Obama’s vice president, and would – subject to conditions – like the US to join the CPTPP. British Conservative politicians have long expressed interest in doing so (Britain “counts” as a Pacific country because a UK Overseas Territory, the Pitcairn Islands, is located there). Thailand is currently considering whether to become a member. The Chinese Premier Li Keqiang recently said that his country “has a positive and open attitude toward joining the CPTPP”. This was a formulation that regional media interpreted as a statement of serious intent, raising the possibility of a remarkable reversal, or at least easing, of the current animosity between Washington and Beijing should both eventually become parties to the agreement.
Many countries have decided that they are far too reliant on China, either for their supply chains, production lines or essential products. AP Photo
The issue is what kind of world Asian countries want to return to post-Covid-19. It cannot, and should not, be the same at least in terms of our attitude towards the environment
As for the BRI, The Economist concedes that "fortunately for China's propagandists, the BRI is a shape-shifting concept that allows them to adapt it to changing circumstances", including prioritising health and digital assistance, pausing certain projects and placing more emphasis on renewables. The snark is unnecessary. You do not have to be a "propagandist" to see that its elasticity is one of its strengths – why should it be absolutely rigid? – and is entirely appropriate to its global ambition given that more than 125 countries have signed co-operation documents with the initiative.
Meanwhile on Monday, Vietnam ratified a free trade agreement with the European Union that will cut or eliminate 99 per cent of tariffs on goods traded between the south-east Asian country and the world's largest trading bloc.
With the party of Najib Razak, Malaysia's former prime minister, back in the ruling coalition, one of his signature projects could see the light of day again. Bloomberg
Lastly, the Singapore-Kuala Lumpur rail project fell out of favour after the government of the then Malaysian prime minister Najib Razak lost the 2018 general election. Almost anything or anyone associated with him became politically toxic. Now that Mr Najib's party is once again part of the ruling coalition, it will be looked on more kindly.
More broadly, the issue is what kind of world Asian countries want to return to post-Covid-19. It cannot, and should not, be the same at least in terms of our attitude towards the environment, if only because we will want to reduce the risk of other viruses making the jump from animals to humans. Most countries will aim to increase by some degree their economic self-sufficiency and will be wary of returning to cross-border just-in-time supply chains.
Joe Biden, The Democratic presidential candidate, would – subject to conditions – like the US to join the CPTPP. EPA
But will it be a world in which one could aim to have breakfast in Kuala Lumpur, lunch in Singapore and be back in the Malaysian capital in time for dinner, as Mr Najib used to say when extolling the rail project? If the alternative is extreme economic nationalism – bolstering onshore production, putting up barriers to foreign investment and shortening supply chains to the point that they avoid crossing borders – then "that's the North Korean model of eliminating risk in international economic engagement", as Australia National University's Shiro Armstrong wrote in East Asia Forum Quarterly recently.
It is surely obvious which model most would prefer. We see disintegration and hear confrontational talk at the moment. But as I have outlined above, there are reasons for hoping for a time when the British novelist EM Forster’s exhortation becomes our watchword once again: “Only connect”.
Sholto Byrnes is a commentator and consultant in Kuala Lumpur and a corresponding fellow of the Erasmus Forum
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
How Tesla’s price correction has hit fund managers
Investing in disruptive technology can be a bumpy ride, as investors in Tesla were reminded on Friday, when its stock dropped 7.5 per cent in early trading to $575.
It recovered slightly but still ended the week 15 per cent lower and is down a third from its all-time high of $883 on January 26. The electric car maker’s market cap fell from $834 billion to about $567bn in that time, a drop of an astonishing $267bn, and a blow for those who bought Tesla stock late.
The collapse also hit fund managers that have gone big on Tesla, notably the UK-based Scottish Mortgage Investment Trust and Cathie Wood’s ARK Innovation ETF.
Tesla is the top holding in both funds, making up a hefty 10 per cent of total assets under management. Both funds have fallen by a quarter in the past month.
Matt Weller, global head of market research at GAIN Capital, recently warned that Tesla founder Elon Musk had “flown a bit too close to the sun”, after getting carried away by investing $1.5bn of the company’s money in Bitcoin.
He also predicted Tesla’s sales could struggle as traditional auto manufacturers ramp up electric car production, destroying its first mover advantage.
AJ Bell’s Russ Mould warns that many investors buy tech stocks when earnings forecasts are rising, almost regardless of valuation. “When it works, it really works. But when it goes wrong, elevated valuations leave little or no downside protection.”
A Tesla correction was probably baked in after last year’s astonishing share price surge, and many investors will see this as an opportunity to load up at a reduced price.
Dramatic swings are to be expected when investing in disruptive technology, as Ms Wood at ARK makes clear.
Every week, she sends subscribers a commentary listing “stocks in our strategies that have appreciated or dropped more than 15 per cent in a day” during the week.
Her latest commentary, issued on Friday, showed seven stocks displaying extreme volatility, led by ExOne, a leader in binder jetting 3D printing technology. It jumped 24 per cent, boosted by news that fellow 3D printing specialist Stratasys had beaten fourth-quarter revenues and earnings expectations, seen as good news for the sector.
By contrast, computational drug and material discovery company Schrödinger fell 27 per cent after quarterly and full-year results showed its core software sales and drug development pipeline slowing.
Despite that setback, Ms Wood remains positive, arguing that its “medicinal chemistry platform offers a powerful and unique view into chemical space”.
In her weekly video view, she remains bullish, stating that: “We are on the right side of change, and disruptive innovation is going to deliver exponential growth trajectories for many of our companies, in fact, most of them.”
Ms Wood remains committed to Tesla as she expects global electric car sales to compound at an average annual rate of 82 per cent for the next five years.
She said these are so “enormous that some people find them unbelievable”, and argues that this scepticism, especially among institutional investors, “festers” and creates a great opportunity for ARK.
Only you can decide whether you are a believer or a festering sceptic. If it’s the former, then buckle up.
Analysis
Members of Syria's Alawite minority community face threat in their heartland after one of the deadliest days in country’s recent history. Read more
Sole survivors
Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
