Core Session 1: Macro and Markets

We are seeing structural shifts in global trade, capital markets and geopolitics.

Economic cycles between the US and China have diverged. Two decades ago, their PMI correlation was 0.8, indicating synchronized growth. Today, that correlation has dropped to 0.2, with China facing deleveraging and deflation, while the US battles inflationary pressures.

The world is moving towards deglobalization and Western nationalism. In response to China’s rise as a global leader in industries like electric vehicles and high-speed rail, Western nations are erecting trade barriers to safeguard national interests, marking a shift away from globalization.

Structural shifts in the global economy create new challenges. Underappreciate part of the economy is the size of capital markets, which is now 12 times larger than in the 1990s, traditional monetary policies struggle to manage the current inflationary environment. Higher capital costs and reduced capital flows are now structural realities that nations must navigate.

Opportunities await for ASEAN and emerging markets amid deglobalization and trade tensions.

Deglobalization creates opportunities for ASEAN. With China’s exports to the US declining from 24% to 13%, ASEAN and Mexico are stepping in to fill the gap. Malaysia, as part of the global supply chain, can enhance its role by moving into higher value-added segments.

Neutrality offers ASEAN a strategic advantage. Many ASEAN countries have skilfully maintained neutrality amid US-China tensions, enabling them to capitalize on the breakdown in relations. This neutrality offers them a strategic advantage to enhance their political and economic statures as the global landscape shifts.

Emerging markets outperform in bond performance. Emerging countries like Chile, which have embraced China’s deflationary effects have seen their bond markets outperform US Treasuries, showcasing the resilience of emerging economies even in a strong dollar environment.

New strategies for capital and resource allocation are required in a shifting global regime.

The West needs to rethink its industrial strategies. In an ideal world, China and US can complement in computing and clean energy needs. China’s rise, along with lessons from the Russian invasion of Ukraine, has prompted Western countries to reconsider their industrial strategies and their ability to remain industrial superpowers without a solid industrial base.

International portfolios need to be reevaluated, with change in market dynamics. Companies should adjust their global strategies based on different market dynamics. For example, they can target growth in India, margins in Europe, supply chain advantages in Southeast Asia, and cutting-edge innovation in the US.

Despite uncertainties, there is beacon of hope for global corporation. Although the US-China relations are strained, the political landscape, particularly with upcoming US elections, could provide opportunities for renewed cooperation. Countries like Malaysia can benefit from fostering knowledge sharing and dialogue to navigate these global shifts.