MARKET REPORT
SHORT READ PART 2
2023 JANUARY QUARTERLY ISSUE
Written by : Andrew Sia
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From the Desk of the Publisher
November was the month where the world leaders were busy attending summits, namely,
COP27 from November 7 – 18
ASEAN 2022 Summit in Phnom Penh from November 10 – 13
G20 Summit in Bali, Indonesia from November 15 – 16
APEC Thailand 2022, Bangkok from November 16 – 19
We have successfully reported them and we hope that many of these summits would help the mankind for going forward.
Then there was the firing spree with the big tech companies, we have noticed Meta, Tweeter, and even with some big corporations like Walmart.
Then we saw the collapse of FTX, a cryptocurrency exchange, run by a bunch of very young people without the sense of self-discipline.
We have experienced a very volatile month which would perhaps damper our festivals.
Contents:
UN Environment Program Panel Report Prior to COP27
Big Tech Faced Big Wipe Off in Stock Value for Week Ending October 28
German Business in China
Apple’s Scenario in China
Huawei Versus Apple
Meta Joins Tech Companies in Firing
Summits in the Month of November
ASEAN 2022 Summit in Phnom Penh, Cambodia
G20 Summit in Bali
APEC Thailand 2022 in Bangkok, Thailand in November 16-19
Effects of Sanctions on Russia
G20 Summit in Bali, Indonesia in November 15-16
What is G20 Exactly?
UN Environment Program Panel Report Prior to COP27 – FT, October 28, 2022
It concluded on a report prior to the COP27 meeting in November that the world is entering into a temperature rise of up to 2.6 degrees Celsius by 2100 instead of the 1.5 degrees Celsius. It blamed on the inadequate pledges from governments to cut emissions.
The two leading emitters, the U.S. and China, and their climate goals have not been improved, although both have sped up their deployment of renewable energy.
This year has been a year of extreme weather events. We have seen flooding in Pakistan and Nigeria, unprecedent summer temperatures in most part of Europe, the U.S. and Asia. These are all the effect from the greenhouse gases that caused floods, storms and raging wildfires.
According to the World Meteorological Organization, global energy-related carbon emissions rebounded after the pandemic to the highest level in history in 2021 at 36.6 trillion tons, and the annual rise in methane in the atmosphere was the largest since records began.
For 2022, the International Energy Agency has projected a slight increase in carbon emissions of 1% to 33.8 billion tons. This has been helped by the increase in solar and wind energy and the increase of the using of electric vehicles.
China has a lower activities due to its lockdowns, certain levels of recessions with the countries also helped to reduce the carbon emissions.
But the invasion of Russia in Ukraine has accelerated a peak in the world’s demand of fossil fuels and natural gas with the replacement of coals and oil, and this has not been helping the world’s bigger picture in limiting the carbon emissions.
At this time, the COP27 in Egypt is only two weeks away now.
Big Tech Faced Big Wipe Off in Stock Value for Week Ending October 28 – FT, October 28, 2022
More than $550 billion has been wiped off the value of the biggest U.S. digital companies this week.
Facebook’s parent company, Meta, reported a slump in its profit margin due to slipping advertising revenue and soaring costs. Mark Zuckerberg has been questioned by the Wall Street analysts on his bets on artificial intelligence and the metaverse. There is the lack of clear explanation how the massive spending would pay off.
Mark Zuckerberg’s metaverse vision has wiped out 22% from Meta’s shares, cutting $80 billion from its stock market value.
Alphabet, parent company of Google, reported weak earning, said it had added nearly 13,000 employees in the past three months, one of its biggest hiring binges ever. Google said that its massive spending would continue, in order to race with the other big tech companies to meeting the growing demands of artificial intelligence.
But the biggest loser in the stock market, Microsoft, saw $174 billion being wiped out by October 27, after showing that growth in its cloud computing business was slowing in the faster pace than expected. This would bring those businesses who are depending on cloud computing and Google’s search advertising would start to suffer.
Between Alphabet, Amazon, Apple, Meta and Microsoft, they lost $566 billion in stock market value by Thursday morning, leaving them a combined value of $6.64 trillion.
German Business in China – FT, October 8. 2022
The German Chancellor, Olaf Scholz, will fly to China next week, which he said would be a very short visit, for his first meeting with Chinese leaders, as German chancellor. Olaf Scholz would also be the first western leader to visit China after its 20th Chinese Communist Committee meeting and to meet the new seven-seat Politburo Standing Committee headed by Xi Jinping.
For Germany, China is the market which twenty years ago was only accounted for 1% of the German exports to 7.5% today, putting it only second to the U.S. In 2021, German goods worth more than €100 billion were sold in China.
Olaf Scholz is going to unveil his new China strategy during the meeting in view that the Chinese state-owned shipping conglomerate, Cosco, would buy a stake of share in the German container terminal in Hamburg. Conglomerates in China, such as BMW, Volkswagen and Daimler, the car makers have plans for their expansion in China. They are going into the EV production there. BASF, the chemical group has also its plan for opening plants there.
But in Germany, Olaf Scholz is under pressure from his coalition partners, the Green and the Free Democrats to keep the distance from China. Concerns are the Chinese government’s atrocities in Xinjiang, where more than 1 million Muslims are being suppressed. This has already affected Adidas, a German sports brand’s business in China with a drop of 15% in two consecutive quarters last year after a boycott over its using of cotton from the troubled region.
The war in Ukraine showed the risk of sanctions should China be found to support Russia in the war. There is also the risk now if China would invade Taiwan, would lead to sanctions as well.
All these have made the German to hesitate to take the bigger step in doing business with China. But meanwhile China is turning inward for supply and there is the increasing desire to source internally. The China’s zero-Covid policy has reduced the demand as well.
Some German companies are looking for chances to diversify their market and learn not to depend too much on China as well.
Apple’s Scenario in China – New York Times, November 8, 2022
It was every September Apple unveiled its latest iPhones in its futuristic Silicon Valley campus. A few weeks later, tens of millions of its latest handsets are shipped from Chinese factories to customers around the world.
On Sunday, November 6, it announced that its newest high-end iPhone 14 would be delayed because of the latest outbreak of Covid-19 in Foxconn plant in Zhengzhou. As the coronavirus cases spiked, Foxconn closed its facility to the outside world and walled 200,000 workers inside its factory ground. The production was significantly dropped and would result a longer wait for the delivery of the iPhone 14 and 14 Pro Max.
This lockdown of the plant in Zhengzhou resulted some of those factory workers fled the facility and walked toward their home across the country.
Apple’s presence in China is so prominent and Foxconn factory in Zhengzhou has the capacity of 500,000 iPhone per day. It is more than half of Apple’s annual sales.
In fact, Apple has benefitted from their apple products being designed in California and assembled in China inexpensively and made them accessible to the vast middle class in China. And for two decades, Apple partnered with manufacturers to build enormous factories supported by a vast network on suppliers inside China. Not only it enjoyed cheap and abundant labor, but also benefited from low prices.
Apple has indirectly hired three million workers in China and its supply bases in India and Vietnam, are out of proportion to those in China.
From the other side, believe it or not, the California-based Apple’s is the most profitable tech company operating in China. It is not their homegrown internet giant, Alibaba or Tencent. Its operating profits in the Greater China, including China mainland, Hong Kong, Macao and Taiwan increased by 104% over 24 months to $31.2 billion in the financial year up to September. Compare it to Tencent’s $15.2 billion and Alibaba’s 13.5 billion of their most recent 12 months, Apple is the global leader.
In fact, its China business grew so quickly during the pandemic that it generates more profit than the combined income of China’s two biggest tech companies. On the other hand, Beijing has been curbing its homegrown tech groups, suffering on the U.S. sanctions on semiconductors that led to the damage of Huawei, its national champion and Apple’s only real competitor in the country.
We have to understand Apple’s situation in China, it has been relying on China as its manufacturing base, and up to 95% of iPhone production is carried out there.
For a greater part of this year, Apple has been the focus of a bipartisan intervention in Washington where alarm has been called over China’s military provocations and technology ambitions has overturned free trade.
In March of this year, Apple was found in conversations with an obscure Chinese memory chip maker—Yangtze Memory Technology Corporation, or YMTC, to supply components for the iPhone 14. But this collided with the lawmakers in the Congress who had spent months examining Apple’s supply chain in China and issued restrictions that prohibited American companies from selling machinery to YMTC.
YMTC is a small Chinese chip maker, was founded in 2016 with an investment of $2.9 billion from the government and a mission to help to reduce China’s dependence on foreign chip makers. A report made by the U.S. national security researchers outlined its parent company, Tsinghua Uni-group has channeled the products to China’s military.
The memory chips from YMTC, are one of the most expensive components, accounted for roughly 25% of its material costs, is a big saving for Apple. Concerns with the U.S. lawmakers that Apple had assisted in recruiting engineers from Western companies to help YMTC to improve their products. These have all been in violation to the U.S. sanctions and restrictions to supply American technology and component without a waiver. On October 7, YMTC was put on the “entry list.”
Apple tried to assure the lawmakers that their use of the YMTC chips would remain on iPhones sold in China, but the lawmakers have applied pressure on Apple from doing so.
This time Apple has found that it has been caught in between the two powers, the U.S. and China, as the relationships have faltered. It was an excellent example for a case study of globalization which is squeezed by the geopolitical scenario. We have to see how Tim Cook of Apple will react this time.
Huawei Versus Apple – FT, November 9, 2022
Huawei took an early lead with 5G-capable smartphone already in August 2019 and had increased its sales of the next-generation devices to more than 7 million units per month by June 2020. Huawei had overtaken Apple in global smartphone sales in 2019 and it was only second to Samsung. By March 2020, Huawei and its sub-brand Honor had reached a combined market share of 42%.
Apple’s first 5G hand set, iPhone 12 series, hit the market only in October 2020.
It was the Trump administration who imposed tough sanctions against Huawei, alleging that it was a security threat. The sanction chipped away the access of 5G technology and Huawei’s market share in China collapsed in the second half of October. In 2021, Huawei’s consumer business revenue halved to $38.3 billion. It plummeted from 29% market share in China in mid-2020 to 7% two years later.
On the other hand, Apple jumped from 9% to 17% and in three years its dominance rose from 51% to 72%.
Apple took credit from the Chinese customers for their feedback knowing that 5G is so far ahead in its coverage in China. It added the Night mode and a QR code reader there.
Apple also choose to stay quiet on sensitive subjects and moves its Chinese user data storage to a data center owned by the Guizhou provincial government. It also removed thousands of apps from the local App Store in accordance to Beijing’s censorship. Those encrypted messaging platforms like WhatsApp, Signal and Telegram are banned.
Meta Joins Tech Companies in Firing – New York Times, November 7, 2022
Meta, the Silicon company who owns Facebook, Instagram, WhatsApp and Messenger, has spent billions of dollars on the emerging technology of the metaverse. It is also known as the virtual reality world. As at the end of September, Meta had 87,314 employees, up 28% from a year ago. It has announced that is plans to lay off employees this week.
Also at this time its digital advertising has weakened as advertisers have pulled back because the global economy has slowed down and inflation has been on the rise.
Last month, Meta posted a 50% slide in quarterly profits and its second quarter sales decline.
Its chief executive, Mark Zuckerberg went further to say that the team would stay flat or shrink by end of 2023.
Earlier on we have seen Elon Musk laid off half of the staff from Twitter. Last week, Lyft said that it will cut 13% of its employees. Stripe, Snap, Robinhood and Coinbase are among those companies who announced job cuts.
Summits in the Month of November 2022
We have noticed the following summits one after the next and we would like to outline them as the following:
COP27 from November 7 – 18
ASEAN 2022 Summit in Phnom Penh from November 10 – 13
G20 Summit in Bali, Indonesia from November 15 – 16
APEC Thailand 2022, Bangkok from November 16 – 19
We will report them accordingly.
ASEAN 2022 Summit in Phnom Penh, Cambodia – CNBC, November 13, 2022
On November 11, the 40th Association of Southeast Asian Nations (ASEAN) summit is hosted by Cambodia in Phnom Penh. It is also the first in-person meeting since the Covid pandemic. The ten countries are made of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. However, Myanmar was barred from the meeting, following by the military coup in February 2021 and the ousted of its elected leader, Aung San Suu Kyi, Nobel peace laureate.
Leaders from the U.S., China and Japan also took the opportunity to meet the ASEAN leaders in Phnom Penh as well.
Prime Minister of Cambodia, Hun Sen, delivered the opening speech at the opening by reminding the ASEAN countries to be vigilant in the current socio-economic situation as the whole world has remained fragile and divided. Its Secretary of State, Kung Phoak, also emphasized the relationships between the U.S. and China would be important to the region’s stability.
The U.S. and China are two of ASEAN’s top trading partners.
Collectively, ASEAN is the U.S. fourth largest trading partner reached $362.2 billion in 2020. But China has remained as the largest trading partner of ASEAN for 13 consecutive years, totaling $544.9 billion in the first seven months of this year.
ASEAN has the free trade agreements with these two countries.
The U.S. President Joe Biden attended the summit in an effort to strengthen his administration’s efforts to promote human rights in countries where democracy have been suppressed. He used the opportunity to counter China’s rise and influence over the ASEAN countries in this time.
During the stay he met with Japanese and Korean leaders for security issues in the Indo-Pacific and threats posed by North Korea’s missile and nuclear programs. He also took the opportunity to meet with Xi Jinping.
On thing about Myanmar which I would like to raise here is the ASEAN has never been able to bring the generals to deal with their illegal coup. It has not been efficient also with the United States and the European nations. With its people continue to stand against the army and thousands of them have been put behind prison. Some have been executed without trial that leaves the country in the horrible stage.
APEC Thailand 2022 in Bangkok, Thailand in November 16 to November 19 – APEC Press, November 19, 2022
This 29th Asia-Pacific Economic Cooperation was hosted in Bangkok, Thailand and chaired by the Prime Minister of Thailand, Prayut Chan-osha. They confirmed the cooperation to promote strong, balanced, secure, sustainable and inclusive growth as well as to their commitment known as APEC Putrajaya Vision.
This APEC Putrajaya Vision 2040 of which they want to keep an open and resilient Asia-Pacific community by 2040 for the prosperity of all the people and their future generations. At the summit they talked about the continuous efforts of controlling the Covid-19 pandemic and to be prepared for the post-Covid-19 economic recovery and to reinforce systems and prepare for any future crisis.
They addressed the challenges for the rising inflation, food security, climate changes and natural disasters.
They will meet in the United States in 2023 and followed by Peru in 2024 and Republic of Korea in 2025.
Effects of Sanctions on Russia – New York Times, November 5, 2022
The Biden administration enforced the sanctions of Russia after it invaded Ukraine. We are now trying to find out if they are effective after the U.S. government issued about 1,500 new and 750 amended sanctions listings since the war started in February 2022. A total of 37 countries have joined the sanctions and the World Bank estimated that Russia’s economy will contract 4.5% this year, but IFM projected 3.4% contraction.
But the sanctions have not be devastating to Russia as the backbone of Russia’s economy is oil and natural gas exports which remains intact. Actually it is on track to earn more this year than 2021 as China and India are the countries that have increased their import from Russia.
We have to know that Russia is the world’s 11th largest economy for $1.77 trillion. The world is watching the five areas to see how the sanctions have affected Russia.
Finance – The U.S. Treasury Department has enforced the sanctions on Russia’s largest banks and transactions have been cut which have prevented many Russian companies from doing business. This has stopped the using of international banking system that represents 80% of the banking assets in Russia. Altogether $300 billion of Russian central bank assets have been frozen around the world. There are discussions now if these Russian government assets should be used to pay for the reparation and the reconstruction of Ukraine.
Trade – The European Union, the U.S. and Britain have placed restrictions on some trade with Russia. This has included the selling of the luxury items into the country. The stop of selling semiconductors and other advanced technology to Russia has also been stopped.
Due to the economy growth and inflation in the Western countries, energy trade from Russia has not been stopped. Other raw materials such as uranium, diamond and nickel have not been stopped either. This export revenue have been funding the war for Russia.
But imports have stopped. And major shipping lines such as Maersk and MSC have stopped.
Technology – We mentioned earlier that global exports of semiconductors have been banned. Also computers, lasers, telecommunication equipment have also been banned.
Sanctions on Rostec, Russia’s largest military and defense conglomerate, Mikron, its microchip producers and Tactical Missiles Corporation have also been sanctioned.
Energy – Russia is the world’s third-largest oil producers and oil has been its largest export commodity. Its natural gas is using a network of pipelines to transport gas to Europe and Asia. Although the U.S. and Britain have stopped their import from Russia but countries like China and India have increased their purchase.
Turkey, a member of the North Atlantic Treaty Organization, increased its purchase from Russia.
Sanctions on Russia would trigger the increase of oil price that would lead to inflation. This is something the Western world doesn’t want to see. But in October, OPEC Plus, with Saudi and Russia announced the cut back of two million barrels of oil per day, have made the Russian oil export indispensable.
Saudi has set a very bad example in this and has helped Russia in the open.
Elites – Sanctions on hundreds of Russian government officials, executives and oligarchs, along with their family members have been imposed. All the 450 members of the Russian’s lower house and the 170 members of the upper houses have also been sanctioned. The same sanctions have been extended by the major European countries.
G20 Summit in Bali, Indonesia from November 15 to 16 – New York Times, November 16, 2022
The world is in a severe geopolitical turmoil, all because of the Russia’s war in Ukraine has caused much of the economic uncertainty. We have been raising concerns of high inflation, a growing scarcity of food, oil prices and natural gas. Already the emerging economies have failed on their payment of debts, and the poor countries have found difficult in getting the supply of grain, rice and other staples.
The Group pf Twenty nations, including wealthy countries and also emerging markets met on November 15 for ways to overcome all these challenges. The war in Ukraine would need to stop and how China can help in the situation like this is something for the member countries to discuss.
Ukraine’s president Zelensky joined the meeting by video link. He asked the Russians to withdraw from Ukraine. While almost all the nations expressed the same opinion, China’s Xi Jinping failed to mention the war but only blamed everything to the tense geopolitical situation without condemning Russia.
IMF downgraded the world’s growth of economy to 3.2% for this year, and 2.7% for 2023. The hope for recovery is due to the Covid, the war in Ukraine and climate disasters on all continents.
From World Bank’s report showing more than 200 million people have experienced severe food insecurity due to food prices.
Central banks around the world are raising interest rates rapidly to combat with the high inflation. The increased interest rates have strengthened the U.S. dollar that hurt the poorer countries when they would have to use hard currencies to buy their food and energy.
There is a European oil embargo on Russia would drive the oil price up, but the U.S. and the European officers are working on a detail in order that Russia can bypass the sanction but to sell at a steeper discount to favor other nations. We don’t know if this could work.
China on the other hand has remained as the major lender to the developing countries and the credit crisis is looming. But China has also the biggest confrontation with the U.S. as it has been criticized for its violation of the principles of market economy and undermine the rules of international trade. The U.S. has stopped selling semiconductors to China that has left the two countries to have nothing to bargain and to come to terms.
We have seen the slowdown of China’s economy which is affecting the global economy and most of it is due to the zero-tolerance towards Covid. This policy is not helping the world’s economy.
With all these uncertainties, the world is entering into recession and yet it is difficult to tell now to its extent. The future doesn’t look great.
What is G20 Exactly?
It was established in 1999 after a series of major international debt crisis and the Group of 20 united the world’s leaders to share their views on economic, political and health challenges.
The G20 is consisting 19 nations and the European Union. Its members are:
United States, Argentina, Australia, Brazil, Britain, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey.
Collectively, they represent more than 80% of the world’s economic output.
The G20 summit is held annually. It brings the financial ministers and heads of the state together. The summit is hosted by the members of the states on a rotation.
The two-day summit usually focused on several core issues and hoping to achieve a joint consensus for collective action. G20 in 2023 would be held in Delhi.