Views with Acuity: Insights to Build Resilience (May 28)
While it is easy to get lost in COVID-19's doom and gloom narrative, take a step back and remember that humans are extraordinary beings. We possess an innate ability to transcend crises, from advances in technology to game-changing medical discoveries. Human resilience — to bounce back, to thrive and grow in spite of adversity — is alive and kicking. The pandemic is grave, no doubt, but in the depths of a crisis, human spirits are powerful — don't discount our creativity, ingenuity, and perseverance.
Of course, this doesn't mean to blindly hope and dream for a better tomorrow. Rather, instead of analyzing how bad things are and will be, focus on the sliver of good news — progress on a vaccine, investments in social safety nets, and increased digitization, to name a few. Competent governments, leaders, communities, and businesses are constantly striving for solutions, and it's time to jump on the bandwagon.
As history has shown, we have managed to figure out ways to push through dark times and come out stronger, both in the short- and long-term. Life may be slightly altered, but it may be the same too. All we know for certain, is that it will go on, and human resilience will see us through.
Country Acuity Advisors - Insights
How we should think about debt. Global debt, across sovereigns, corporations, and households, has been steadily rising. While the pandemic is pushing many to take on more debt, the wealth disparities are being laid bare for all to see. Though affordability risks are somewhat diminished as interest rates remain low, central banks and government-backed institutions buying sovereign debt is likely unsustainable. The status quo is comforting, especially for those in charge and who benefit, but a crisis like this instigates a much-needed process of drastic change. Economic populism is a natural rebalancing of the complex world we live in. Expect more of this to come in the many years ahead as grave inequalities persist and people's discontent continues to grow.
The worsening U.S.-China spat — a new Cold War? A new low appears every week, as the world's largest and most powerful countries continue to deepen their divisions. Strategic national interests, which in the past had been dominated by economic and business considerations, are now rearing their heads with a vengeance and it's hard to envision an exit plan. Bridging the ideological gulf now seems almost impossible, with both the Washington left and right uniting in their tough on China stance, particularly in the pandemic's wake. Expecting China to democratize is short-sighted, as is expecting a U.S. acquiescence to China becoming the world's top tech economy. A democratic presidential victory in November may bring some much needed rational thinking, but strategic competition will be the new norm. Middle powers and the EU can and should play a constrictive role. But, across the world, for many countries and increasingly for companies, they may be forced to choose sides or balance both for their own prosperity and security.
Southeast Asia will continue to offer opportunities. Multinational corporations are increasingly focusing on Vietnam as a destination for global manufacturing, particularly in the wake of supply chain relocation brought on by COVID-19. Most of the large Southeast Asian economies are domestically oriented, with GDP driven by consumption. While a lockdown necessarily hurts, economies can rebound with the right policy mixes. For example, both Philippines and Indonesia tapped capital markets recently, and the region as a whole is more resilient compared to previous crises. Though geopolitics will still play a role in shaping Southeast Asia and vulnerabilities remain, investors, exporters, and policy makers should not lose sight of the region's promising future. Start building those crucial relationships now.
Country Acuity in the News
Country Risk: India’s Covid-19 Hit May Turn It to Junk. Joy Rankothge, principal of Country Acuity Advisors, ponders if India's fiscal stimulus package will spur the bold strategy that investors have been hoping for from prime minister Narendra Modi since he took office in 2014. One area that India must reform is the banking sector, where around 70% of assets are controlled by the public sector. “Banks are sitting on very high non-performing loans, and several rounds of reforms and recapitalizations haven’t really fundamentally addressed the issues,” says Rankothge, who adds that India must address this issue if the country is to grow at close to potential. Read more (Euromoney, May 21, free).
COVID-19 Impact on Geopolitics and Country Risk in South and Southeast Asia. Principal Joy Rankothge was invited to speak at the Singaporean-German Chamber of Industry and Commerce to a distinguished audience that included German financial institutions and the Bundesbank last week. He shared his acute insights on the pandemic exposing existing vulnerabilities, supply chain relocation to the region, and sovereign and political risk outlooks. Overall, weaker countries are likely to face the most stress and pain. In the long-term, economic activity will resume and fears of a depression may be overblown.
BRI: Pandemic Will Encourage China to Shift Focus. “China may reprioritize certain aspects of the BRI in the wake of its weaker GDP print and the Covid-19 backlash internally and externally,” says Joy Rankothge of Country Acuity Advisors. “There will be calls for debt forgiveness or a debt moratorium among participating countries, but with China’s not very receptive attitude to debt forgiveness, it may make some BRI recipients pause rather than take on more debt.” Read more (Euromoney, May 14, free).