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
UAE currency: the story behind the money in your pockets
Indoor cricket World Cup:
Insportz, Dubai, September 16-23
UAE fixtures:
Men
Saturday, September 16 – 1.45pm, v New Zealand
Sunday, September 17 – 10.30am, v Australia; 3.45pm, v South Africa
Monday, September 18 – 2pm, v England; 7.15pm, v India
Tuesday, September 19 – 12.15pm, v Singapore; 5.30pm, v Sri Lanka
Thursday, September 21 – 2pm v Malaysia
Friday, September 22 – 3.30pm, semi-final
Saturday, September 23 – 3pm, grand final
Women
Saturday, September 16 – 5.15pm, v Australia
Sunday, September 17 – 2pm, v South Africa; 7.15pm, v New Zealand
Monday, September 18 – 5.30pm, v England
Tuesday, September 19 – 10.30am, v New Zealand; 3.45pm, v South Africa
Thursday, September 21 – 12.15pm, v Australia
Friday, September 22 – 1.30pm, semi-final
Saturday, September 23 – 1pm, grand final
Family: mother, three sisters, three brothers and a two-year-old daughter
Dust and sand storms compared
Sand storm
Particle size: Larger, heavier sand grains
Visibility: Often dramatic with thick "walls" of sand
Duration: Short-lived, typically localised
Travel distance: Limited
Source: Open desert areas with strong winds
Dust storm
Particle size: Much finer, lightweight particles
Visibility: Hazy skies but less intense
Duration: Can linger for days
Travel distance: Long-range, up to thousands of kilometres
Source: Can be carried from distant regions
Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
Will the pound fall to parity with the dollar?
The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.
Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.
New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.
“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.
The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.
The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.
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.”
