Hope, it’s not a Strategy in Today’s World

Many things happening globally in today’s world are based on a simple principle of “cause and effect”. While the underlying principle is simple, much of the simplicity stops there.

As we dive deeper into the abyss, we discover that there are endless ripple effects and collateral damage happening at the surface due to seemingly postured movements of particular governments. Some are expected while others, take us all by surprise. There is no coincidence in events, and almost everything happens for a reason; intentional or unintentional.

So what then, should we be focusing on at this point, and how will it impact businesses and economies domestically and globally?

China vs. The U.S.

The transformative journey of the Asian giant China in the last 10 years is truly commendable. It is becoming quite frankly a second-to-none economy and powerhouse. It is also due to its meteoric rise that the U.S., powerhouse of the world, is posturing itself to show that it is still a force not to be reckoned with.

The trade war initially born out of patents has evolved into something much more substantial; this struggle for world domination will have devastating damage which at first glance seems to be collateral in nature however is far from so. Huawei and Apple are just some big names navigating through this tricky economic landscape.

With no end in sight for this global game of chess, we watch closely as every move unfolds with its ripple effects reaching far and wide. The latest move by China to manipulate currency as many would refer to, sent global stock markets and currencies plummeting. The strategic move to drop the Yuan below the psychological 7, a place it hasn’t been to in over a decade, is China’s answer to the 10% tariffs imposed by the Trump administration on $300 billion of Chinese imports.

With the drop in Yuan, many of the Chinese goods are now cheaper, prompting challenges to export-driven businesses, due to reduced revenue. Economies with heavy reliance on exports such as Bangladesh and various SEA countries will also be inadvertently impacted.

How then do SME and mid-tier businesses around the world manage to survive through the bitter US-China trade war?

The Japan and South Korean Feud

The history of Japan and Korea is known to many, with the two countries seen both good and bad times while never truly escaping the post-war rifts that are history but not forgotten. The feud reignited when the South Korean Supreme Court ordered Japanese firms to compensate Korean wartime workers, which was a move that Tokyo had no problems showing displeasure over by removing Seoul from eligible fast-track exports as well as tightening export controls.

As Japan and South Korea dig into each other with potential blows to their respective economies, it remains to be seen who will end up being the biggest loser. One thing is for sure; China stands to be the most victorious if and when the GSOMIA is pulled, which with the current deterioration of the two U.S. allies, seems more and more likely. As the annual renewal deadline for the General Security of Military Information Agreement looms, which enables three-way intelligence gathering between the three countries, the giant Asian tiger China silently sits in the background with a watchful eye.

The Hong Kong Unrest

China does not have everything sweet though, with the recent unrest of Hong Kong, to which it promised a “one country, two systems” governance principle. With its 50-year used-by-date barely ticking over halfway, we can in a way sympathise why people may be upset over the introduction of the new law which allows the extradition of suspects to mainland China.

The argument is 2-fold, with Hong Kong quite literally divided and torn internally. From an outsiders’ perspective, it is saddening to witness such unrest from a country known to be the Asian Financial Hub, which implicitly promotes financial stability.

Stepping back and looking at the bigger picture, though, the fear lies in the unrest, which is seemingly political to evolve into an economic one potentially. With the US-China trade war already in the works, adding the domestic political turmoil may be more than enough to trigger a recession. With its approximately $5 trillion stock market decoupling from the U.S. as the unrest shows no sign of slowing, Hong Kong may not come out as unscathed as the “Umbrella Movement” 5 years ago.

India Moves

India moves its independent chess piece by controversially revoking Kashmir’s special constitutional status, exposing a deep division between the Indian and Pakistani communities.

Pakistan’s downgrade of diplomatic relations together with terminating the bilateral trade with India is a clear reflection of worsening relations between the two countries, which historically speaking is anything but new. Trade dependencies between the two countries are minute when taken into context its proximity. However, cordial relations can benefit economies due to Pakistan’s strategic geographical location. This, however, looks increasingly unlikely as new conflicts add addition mention between the two countries.

How this will impact the global economy is still to be seen. The only certainty we can draw from the heightened tensions and conflicts occurring worldwide is that they are anything but coincidental.

Then there’s Brexit

A no-deal Brexit can also be one of the events that have the potential to throw the global economy off-course. This increasingly likely outcome which involves the U.K. to leave the E.U., “deal or no deal”.

The Brexit-related uncertainty is causing business investments in the U.K. to fall. Coupled with the non-growth of private sector capital spending since 2015, one ponders on how the U.K. can rescue itself from the lowest productivity growth since the GFC.

The Recession of Opportunities

It is neither coincidental nor purposeful that the global economy is what it is right now. Seemingly independent events are all interconnected in ways which may not be immediately apparent.

Yes, a recession is overdue. All data points to the imminent arrival of one. With global debt set to reach $500 trillion, the next recession’s trigger will likely be born out of corporate debt, much like how the subprime mortgage debt triggered the last one.

This recession, however, will be different. Many unique political and trade issues are at play, together with the rise of influential tech such as cryptocurrencies, it is becoming increasingly inaccurate to predict the recession looming ahead based on historical performances.

Is Bitcoin joining the ranks of “Safe Haven” assets? How will this inadvertently affect prices of gold? How does gold-backed cryptocurrencies come into the equation?

There will be many opportunities arising from difficult periods, such as the one we are now experiencing. We are getting the recession of opportunities; the key is to know where to look for them as the majority panic and head for shelter.

One thing is for sure, “hope” is not something you should be banking on.