The Next Giants

I am inclined to refer to writing by Shigesaburo Okumura, Editor-in-chief, Nikkei Asia. This, not only hints towards shifting paradigm, but also that world economic growth will be driven by Asia and not by United States or Europe. I quote below:

For the first time in 10 years, yellow sand from the deserts of Mongolia and Kazakhstan has blown into Tokyo. The arrival of the "Asian dust" is a traditional indicator of the coming of spring. It may only be a grain of sand, but seeing that tiny piece of earth makes me feel like I'm a part of Asia. That is not a bad feeling.
 
As the first Big Story of Japan's fiscal New Year, we look at a ranking of Asia's 500 fastest-growing companies, prepared in collaboration with the Financial Times of the UK and Statista of Germany.
 
Of those high performers, our story focuses on seven. That includes the top-ranked company, Carro, a Singapore-based online used-car sales platform. We also highlight its Malaysian competitor, Carsome, which stands at 17th in the ranking.
 
The secret of Carro's success is that it provides detailed reports of any flaws found with its vehicles.
 
In the world of microeconomics, used-car markets are considered a typical "market for lemons," in which buyers cannot judge the real value of the fruit based on its appearance. Removing information asymmetry between sellers and buyers is crucial if the market mechanism is to work effectively. It makes sense, then, that Carro's strategy is so popular among its customers: With the information gap removed, clients are able to buy used cars at a fair price.
 
Other than online car dealers, the story also features Indian mattress seller Wakefit; Singapore-based delivery company Ninja Logistics; South Korean robotics startup Twinny; Japanese software startup AI Inside, whose technology converts handwritten documents into digital data; and New Zealand electricity retailer Electric Kiwi.
 
The ranking is based on the companies' compound annual revenue growth rate between 2016 and 2019. The performances do not reflect the impact of COVID-19, but reading these entrepreneurial success stories, I am convinced that such "animal spirits" will drive the revival of the post-COVID world.
 
Market Spotlight this week is a story on Appier, the first Taiwanese startup to list in Japan since Trend Micro went public in 1998, while our Business Spotlight looks at Bilibili, known as "China's YouTube."
 
Asia Insight is an examination of the Tokyo Olympics. According to the latest Kyodo News poll, only 23.2% of Japanese support holding the games this year.
 
As for the mounting costs amid the diminishing enthusiasm, a professor at College of the Holy Cross in the United States points out in the story that the Tokyo Olympics are "basically the last in the old world where the concept was you spend an unlimited amount, and everyone should be all right with that because it's the Olympics."
 
While we're on the subject, there is talk of a possible boycott within the Western world of the Beijing Olympics in 2022, because of human rights issues related to the Xinjiang Uyghur Autonomous Region.
 
Some apparel brands, including Muji, are facing potential criticism for using Xinjiang cotton, which has become a focus of attention amid claims of forced labor. The Japanese company maintains its cotton is ethically produced. The story describes the difficulties that private companies must navigate in dealing with this highly sensitive issue in China.
 
I also recommend our stories on Myanmar's Generation Z, and the reopening of the Suez Canal.
 
Please do not miss our opinion piece on the #StopAsianHate movement. The author writes that "'Asian hate' has also long encompassed stereotypes and discrimination against ethnic and religious minorities as well as against indigenous peoples, including within Asia" and that "the need to 'Stop Asian Hate' is not just a US or European challenge."
 
I agree that we have to discuss this issue in a broader context, so that more people regard this problem as their own.
 

Bangladesh GDP anticipated to grow by 5.6% in current fiscal year

Bangladesh gross domestic product (GDP) is anticipated to grow by as high as 5.6% in the current fiscal year, subject to three factors, says a World Bank report. These critical factors are: 1) outcome of ongoing vaccination campaign, 2) likely restrictions on mobility, and 3) pace of recovery of world economy.

While there are bright chances of growth during FY21, significant uncertainty surrounds both epidemiology and policy development,” said the “South Asia Economic Focus South Asia Vaccinates” report. “Thus, growth in FY21 could range from 2.6% to 5.6%.

Over the medium term, growth is projected to stabilize within a 5% to 7% range as exports and consumption continues to recover.

The prospects for economic rebound in South Asia are firming up as growth is set to increase by 7.25% in 2021 and 4.4% in 2022, said the report, creating hopes for substantial recovery from historic lows in 2020, putting the region on a path to recovery.

“But the growth is uneven and economic activity remains well below pre-COVID-19 estimates.”

Following a sharp GDP growth deceleration in FY20 due to the pandemic, the economy started recovering in the first half of FY21, as movement restrictions were lifted and international buyers reinstated export orders.

Going forward, a gradual recovery is expected to continue; particularly if the government’s COVID-19 recovery programs are implemented swiftly.

With growth firming up, poverty is projected to decline marginally in FY21.

The pandemic impacted the economy profoundly. A national shutdown from March to May last year resulted in severe supply-side disruptions in all sectors of the economy.

The government’s COVID-19 stimulus provided firms with access to working capital and low-cost loans to sustain operations and maintain employee wages in FY20 and FY21.

From June 2020 onward, movement restrictions have been progressively lifted, and transit and workplace movement patterns returned to pre-pandemic levels by October.

According to the report, the downside risks are likely to persist if new waves of COVID-19 re-emerge in Bangladesh or its trading partner countries.

“This could necessitate additional movement restrictions, dampen demand for readymade garment, and/or limit the outflow of migrant workers.”

Bangladesh is expected to graduate from the UN’s least-developed country status in coming years, which will present opportunities but also challenges, including the eventual loss of preferential access to advanced economy markets, the report said.

Estimated poverty rose sharply in the fiscal year 2019-20 amidst substantial job and income losses.

However, household surveys point to a gradual recovery in employment and earnings and a decline in poverty in the first half of the fiscal year 2020-21.

Food security improved across the country, with the most significant increase in Chattogram.

The report stated that risks to the outlook might persist.

It identified fiscal risks, including weak domestic revenue growth (if tax reforms are delayed) and higher expenditure for COVID-19 vaccination (if external financing is limited) and for supporting the Rohingya refugees (if donor fatigue sets in).

In the financial sector, contingent liabilities from non-performing loans combined with weak capital buffers could necessitate recapitalization (resulting in higher domestic government debt) and depress credit growth.

While external demand for RMG appears to be stabilizing, the recovery is fragile and could be vulnerable to new waves of COVID-19 infections.

Demand for Bangladesh’s overseas workforce in the Gulf region may also be impacted by the ongoing recession in the region, impairing future remittance inflows.

OPEC plus decision to ease production dictated by United States

On Thursday, OPEC plus once again succumbed to pressure from the United States to gradually ease its oil output cuts from May. This should not be a surprise for the world because the Biden administration did exactly what Donald Trump had been doing in the past. 

Just to recall, it was Trump’s practice to call OPEC leaders, particularly Saudi Arabia to keep energy affordable.

The group, which has implemented deep cuts since a pandemic-induced oil price collapse in 2020, agreed to ease production curbs by 350,000 barrels per day (bpd) in May, another 350,000 bpd in June and further 400,000 bpd or so in July.

Under Thursday’s deal, cuts implemented by the Organization of the Petroleum Exporting Countries, Russia and their allies, a group known as OPEC plus, would be just above 6.5 million bpd from May, compared with slightly below 7 million bpd in April.

“What we did today is, I think, a very conservative measure,” Saudi Energy Minister Prince Abdulaziz Bin Salman told a news conference after the OPEC plus meeting, adding that output levels could still be adjusted at the next meeting on April 28.

He said Thursday’s decision had not been influenced by any talks with US officials or any other consuming nations.

The Saudi minister also said the kingdom would gradually phase out its additional voluntary cut that have been running at one million bpd, by adding 250,000 bpd to production in May, another 350,000 bpd in June and then 400,000 bpd in July.

“We reaffirmed the importance of international cooperation to ensure affordable and reliable sources of energy for consumers,” Jennifer Granholm, the new energy secretary appointed by US President Joe Biden, said on Twitter after her call with the Saudi energy minister.

News of the call coincided with signs of a changing mood in informal discussions between OPEC plus members. A few days before Thursday’s talks, delegates had said the group would likely keep most existing cuts in place, given uncertainty about the demand outlook amid a new wave of coronavirus lockdowns.

But in the 24 hours before the meeting started, sources said discussions had shifted to the possibility of output increases.

In the past, Trump had used his influence to force Saudi Arabia to adjust policy. When prices spiked, he insisted OPEC raise production. When oil prices collapsed last year, hurting US shale producers, he called on the group to cut output.

Until this week, Biden’s administration had refrained from such an approach, keep a distance from Riyadh and imposing sanctions on some Saudi citizens over the 2018 murder of Jamal Khashoggi.

Even when OPEC plus decided on 4th March to keep output steady, triggering a price rise, the White House had made no direct comment.

Biden administration considers West Bank occupied territory, says Ned Price

Biden administration clarified that it considers the West Bank to be occupied territory, but ducked a question as to whether it held that settlements were illegal. "It is a historical fact that Israel occupied the West Bank, Gaza, and the Golan Heights in the 1967 War," US State Department spokesman Ned Price told reporters in Washington on Wednesday.

The issue was raised after the Biden administration published on Tuesday the 2020 Country Reports on Human Rights Practices. It is the first of the annual reports released since US President Joe Biden took office in January 2021. The report affirmed steps taken by the previous Trump administration, which had both recognized Jerusalem as Israel's capital and Israeli sovereignty over the Golan Heights.

It also kept in place a description change made to the report by former US president Donald Trump, in which he replaced the phrase "Israel and the occupied Palestinian Territories" with "Israel, West Bank and Gaza."

But within the report, the Biden administration reintroduced the word "occupied" to describe Israel's seizure of territory during the 1967 Six Day War. 

When questioned by a reporter as to whether the US considered that Israel occupied the West Bank, Price affirmed that it did.

"In fact, the 2020 Human Rights Report does use the term 'occupation' in the context of the current status of the West Bank," Price said. "This has been the longstanding position of previous administrations of both parties over the course of many decades."

Israel has long argued that the West Bank does not meet the standard of occupied territory, because it captured the area from Jordan, whose sovereignty there from 1948-1967 was not recognized legally and which itself was considered to be occupying it.

Prior to the 1948 War of Independence, the territory was held by Great Britain; prior World War I, it was part of the Ottoman Empire.

The Trump administration believed that Israel had historic and religious rights to portions of that territory and did not refer to it as occupied. Its top officials agreed with the Israeli Right, that the proper term was Judea and Samaria and not the West Bank, terminology linked to the time when the territory was under Jordanian rule.

Trump also changed US policy toward Israeli West Bank settlements. It rejected a 1978 memo by then US State Department legal advisor Herbert J. Hansell declaring that the settlements were illegal, declaring instead that they were not inconsistent with Israeli law.

The United Nations holds that Israel's settlements are illegal and that the West Bank is occupied Palestinian territory.

The Biden administration has yet to clarify its stance on the settlements, even though it is presumed to support a two-state solution at the pre-1967 lines.

At Wednesday's press conference, a reporter asked Price, "Does the US consider, for example, Israeli settlements in the occupied territories to be illegal as a result of this stance?"

Price responded that the US position had not changed, but he clarified that stance in his own way.

"We – as you have heard me say before – we continue to encourage all sides to avoid actions – both sides, I should say – to avoid actions that would put the two-state solution further out of reach. 

"Again, our ultimate goal here is to facilitate – to help bring about – a two-state solution because it is the best path to preserve Israel’s identity as a Jewish and democratic state while bestowing on the Palestinians their legitimate aspirations of sovereignty and dignity in a state of their own," he said.

These lines are often his and other Biden official's standard response to many questions about the Israeli-Palestinian conflict.

Pakistan Stock Exchange remains under pressure during March 2021

Weak market sentiments at the end of result season were further dampened by political ambiguities (senate elections, changes in cabinet). As a result, benchmark index of Pakistan Stock Exchange (PSX) closed March 2021 on a negative note, down 2.8%MoM to close at 44,588 points.

Even improving external account position (rupee appreciation, IMF disbursement of US$500 million, successful issuance of Eurobond) failed to lift the sentiments. Average volume declined to 598.3 million shares as compared to previous two-month average of 772.4 million shares and 8MFY21 average of 624.4 million shares. Average traded value was in line with previous two-month average of Rs36 billion, signaling shift to top tier stocks.

Amongst major sectors, OMCs and Chemicals were the leaders with a gain of 2.8%MoM and 2.4%MoM respectively. Performance of OMCs was linked to margin expansion (EPCL margins up 36.7%CYTD whereas that of LOTCHEM was up 54.2%CYTD). Textile composites experienced the heaviest decline, down 11.2%MoM. All-Sector chart was topped by Glass & Ceramics with a gain of 22.5%MoM followed by Leather & Tanneries +17.8%MoM, while Cable & Electrical goods were the laggards, down 11.5%MoM.

Flow wise foreigners remained net seller with net disposal of US$8.47 million in March 2021, taking CYTD net to US$16.5 million. However, selective foreign buying was witnessed in the latter part of the month in the wake of rupee appreciation. Mutual Funds and Companies also emerged net seller with US$16.9 million and US$10.7 million respectively which was absorbed mainly by Insurance and Individuals with net buy of US$15.8 million and US$11.1 million respectively. Excluding last day’s net buy of US$7.41 million, individual’s net buy during the month under review was reported at US$3.7 million as compared to 12-month net buy of US$26 million indicating anchoring role of individual participants to have subdued in the recent month.

With political frenzy in the background, attention in April 2021 is likely to be centered on four key inputs: 1) corporate earnings, 2) economic data points, 3) interest rates, and 4) budgetary measures in the near term. Earnings are likely to continue their strong run for the quarter ended on 31st March 2021, following rupee appreciation (up 4.3%QoQ), and raw material inventory built up by manufacturing players (evident from Rs189 billion increase in working capital loans in last quarter of CY20) countering pressure from bull-cycle in global commodities (+11.0%QoQ) on 1QCY21 input costs.

On the flip side, increasing inflationary pressures could boost expectation of interest rate hikes snowballed by potentially tough budgetary measures where Government of Pakistan has already agreed Rs6 trillion FBR target with IMF for FY22 as against Rs4.7 trillion for FY21, which could keep market range-bound in the coming months.

That said, Pakistan’s long term growth story remains intact with additional support coming from robust external account position and improving prospects of trade with India. Analysts continue to like Cements, Steel and other Construction and allied sectors. Their top picks include LUCK, MLCF, DGKC, and MUGHAL. They also like Chemicals (on margin expansion) and Autos (rupee appreciation and strong demand).

Cold war is still going on, though of another type

According to many analysts, 20th century ended with a unipolar world. The United States developed the complacency it had eliminated its enemies, but the start of the 21st century proved it wrong and the cold war is still going on.

The fight against communism might be over, but the communist countries from the east began to respond to the US, in their own way. Two leaders from the east, Putin and Xi Jinping are constantly challenging the US hegemony through proxies, trade and diplomacy.

Although, the main US enemy during the cold war was Russia, one more was added to the list in the new cold war, China. The dawn of the 21st century brought rising China.

Its military might and economic progress posed a threat to US dominance. China began to capture the world through trade and investment. It caused the US, to take some unconventional steps against China. The US imposed economic sanctions on China and China responded accordingly. Hence, the trade war started.

The US also shifted its Asia Pacific policy to Indo-Pacific. The initiative New Silk Road, the establishment of Quad, more military presence in the South China Sea, military assistance to Taiwan, and support for Hong Kong are some manifestations of the new cold war.

Rising Russia

Putin strengthened the disintegrated Russia, which gave birth to the new phase of the cold war, and also made Russia stronger to give a befitting response to the US at every front.

Putin with political acumen and strong nerves has brought Russia to the level to compete with the US at the international chessboard more firmly and robustly.

In 2015, Russia launched airstrikes in Syria to back Bashar Al-Assad, the US was too keen to topple. Failed Trump had to announce the withdrawal of troops from Syria. Subsequently, Russia won Asad, the ruler of an important country in the Middle East.

Furthermore, Russia’s meddling in the US 2016 elections which boosted Trump candidacy, proved Putin a great strategist. Trump’s policies ‑ withdrawal from the Paris Climate Accord, cancellation of Iran nuclear deal, Mexico border wall, a travel ban on some Muslim countries, recognition of Jerusalem as the capital of Israel etc. brought criticism to the US.

By bringing Trump into power, Russia succeeded in minimizing its enemy’s role in international politics and tarnishing its image at an international forum.

Russia and China also enjoy good relations with Iran. Both Russia and Iran are also major allies in Syria, a country that was once America’s ally. Closer to home, Russia is also trying to play its card in the Afghanistan conflict.

The US had to invite Russia to arrange the Moscow conference, which was arranged on 20th March, to bring peace to Afghanistan. After fighting the longest war, the US is defeated and facing humiliation, because of Russia’s support to Taliban. Now Russia would surely win an important stake in Afghanistan’s political leadership.

Falling United States

Moreover, Turkey has also gone from the US hands. The US sanctions over Turkey against buying the S-400 missiles system from Russia have brought the relations between former allies to a historic low.

Turkey, under Erdogan, chose to preserve its sovereignty by pursuing an independent policy. Hence, the country, which once allowed the US to deploy nuclear weapons against USSR now has warm relations with Russia and is no more on Uncle Sam’s payroll.

In Latin America waves of the cold war were also seen following the Venezuela crisis. The US has thrown its support behind Venezuelan opposition leader Juan Guaido and declared him the interim president while Russia sent two military planes carrying about 100 Russian personnel arrived in Caracas in the support of President Maduro.

The US officials have told CBS News that the influx was unusual for its size, has fuelled tensions between Russia and the United States as China was also supporting Maduro. Hence, the 21st century has ignited the cold war between Russia and United with new a new vigor.

It was thought that Biden, the seasoned politician, who was known for his support to democratic values, would not put through the world into an abyss of another cold war, but his first foreign policy speech proved it wrong.

China building iron ore hub in Africa

It seems Chinese state planners have realized their glaring vulnerability, high dependence on iron ore from Australia. Perhaps that is why China is looking at an impoverished but mineral rich country in West Africa, Guinea, as the potential partner that would free it from the dependence on Australia, which has turned a foe after joining Quad.

Guinea sits atop the world's largest reserve of untapped high-quality iron ore. Surely it is no coincidence, then, that on 4th March 2021, the first batch of China-donated COVID-19 vaccines arrived in Guinea, one of the first nations to receive the Chinese gift. 

The change in Chinese strategy can be best understood by reading two briefs. The stock market turmoil linked to US investment firm Archegos Capital Management appears to have hit Japan's biggest financial player, Mitsubishi UFJ Financial Group. Its security unit said it faces a potential loss estimated at $300 million at a European unit.

In worrying news for Apple, its partner and top iPhone assembler Foxconn said that the global chip shortage will cut its shipments by 10% a rare acknowledgment that shows some of the world's biggest consumer names might face headwinds from the supply crunch rocking the tech industry.

Further clarity can be obtained by a quick review of rise and fall of Japan.
 
"No other nation at the present time is spending so large a part of its revenue on naval preparations," military author Hector Bywater wrote in the 1921 book "Sea-Power in the Pacific." But Japan had a critical weakness: lack of steel. Japan's ambition to become the dominant Pacific naval power was brought to a standstill when the US imposed a steel embargo in 1917.
  

Courtesy: Nikkei Asia