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Where angels fear to tread and sleepwalkers lurk

Chew Sutat
Chew Sutat10/27/2022 12:39 PM GMT+08  • 9 min read
Where angels fear to tread and sleepwalkers lurk
Nations were drawn inadvertently, unwittingly into the horrors of World War 1. The world today has some semblance to the 1910s Museums Victoria via Unsplash
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Before I was floored by Covid-19 last week, I caught up with two sell-side legends in Asian equities over dinner. One ran a broking business for a US institution while the other did the same for a French/Asian concern. Between the two, they have a total of more than half a century of experience in research, sales, trading and corporate finance. Both had also sat on the securities advisory committees of the Singapore Exchange (SGX), my previous employer. One was even a colleague for a season after I coaxed him out of retirement temporarily.

One is an American and the other is a Brit. Even so, they have been based in this region for decades. For a good many years, they have helped raise capital and lift valuations. Their passion for the local market ecosystem remains as strong. Indeed, one just started a new fund anchored by European capital — whose thesis is to support the pre-IPO market for growth stocks and sectors — which is expected to list in Singapore!

The American was back in the US to visit his aged parents but made a stop in the UK before arriving here in Singapore. Knowing the circuitous route he had taken, he was jokingly asked if he was doing a grand tour of emerging markets where governments are formed and toppled regularly without raising too many eyebrows. After all, a lettuce outlived Elizabeth Truss’s 44-day premiership.

Jokes aside, the “decline and fall” of Western political leadership is real. We are not even talking about the ancient regimes of continental Europe — led by enfeebled French president Emmanuel Macron and the tentative German chancellor Olaf Scholz and fractured by new Putin-leaning Italian and renewed Hungarian right-wing leadership — which is in danger of running out of gas this winter.

The EU’s decline is now mentioned in the same breath as the decaying infrastructure of the US, UK, and the banana republic economies. Certain quarters of the UK harbour hope for a return of Boris Johnson as prime minister in 2024 as Rushi Sunak moves into No.10 for now while Trump-fuelled Republicans are likely to regain control of the US House as well as the Senate following the mid-terms next month. And the US, which used to accuse its trading partners of protectionism, is wielding this very same weapon with its Chips and Science Act.

Wise men say

See also: Hunt claims Brexit will drive growth as he rules out UK tax cuts

As we debated the state of the global union over dinner, I posed a question that had come up at various forums in recent weeks: Which period in history does the ending months of 2022 remind us of?

History tends to repeat itself, not always as tragedy or farce as Karl Marx will have it but certainly as a lesson to avoid if we can help it. While comparisons to the roaring 1920s in Shanghai or the go-go years leading up to the 1929 Wall Street crash were inevitable, the consensus was that we are now broadly akin to the mid to late 1930s. Or early 1910s.

In both instances, an economic and asset price boom fuelled by new technology, telegraph, cross-border trade (the forerunner of “globalisation” before it entered conventional lexicon) and hope, had gone to bust.

See also: China recalibrates its policies: What does that mean?

Those were also periods when competition became intense for the control of commodities and resources, specifically oil. Politically, nationalism was accentuated, no thanks to governments finding an external bogeyman to blame for their failing economies. The list includes the Weimar Republic’s hyperinflation, the Great Depression that started in the US, and China’s foreign debt. Trouble spots from the Balkans to Manchuria eventually precipitated two world wars as the clash of civilisations — a difference in political and economic order that played out to an ugly end.

Two brilliant books for those who bothered to read and heed had already offered rich narratives and penetrating analyses on how nations could inadvertently find themselves in much bigger conflicts other than merely economic ones. The Guns of August, a Pulitzer-winning work by American historian and journalist Barbara W Tuchman, detailed the decision paralysis and misplaced assumptions of individuals wielding too much power for their own good in the weeks leading up to World War I. This book, published in 1962, was reportedly a favourite of then-US president John F Kennedy.

A more recent work, Sleepwalkers — How Europe Went to War in 1914 by Australian historian Christopher Clark in 2013, joins the flood of books published to coincide with World War I’s centenary. What made Sleepwalkers stand out was its gripping narrative of how certain world leaders, transfixed to their own deep-rooted cultures, paranoia and ambition, stumbled into a hot war, oblivious of the horrors they were about to wreak on their own people and the world. Indeed, DPM Lawrence Wong, in an August interview with Bloomberg, chose exactly this phase that the US and China may “sleepwalk into war” over Taiwan.

The recent pronouncement by US secretary of state Antony Blinken that China plans to seize Taiwan on a much faster timeline and that the US will fight to defend the island if that happens, is a major shift from “strategic ambiguity”. Did that trigger Xi Jinping’s Oct 24 inclusion of the opposition to Taiwan’s independence in China’s constitution at the end of the 20th Party Congress or catalyse it, having come right after America started the Chip war?

Only fools rush in

In an Oct 21 Financial Times article, associate editor Rana Foroohar’s “Guide to a deglobalising world” postulates a new global order offering new opportunities as nations retreat from their borders. She points out that until recently, the “idea that capital, goods and people might not continue to travel seamlessly across borders was heresy”. After all, Bill Clinton in 2000 declared “the question is not whether globalisation will proceed but how?”

Foroohar argued that there is a middle ground between the hyper-globalisation of the 1990s and the nationalism of the 1930s. I hope she is correct as the Balkans and Manchuria are replaced by Russian aggression in Ukraine, the military rule in Myanmar and the unrest in Iran — all of which have come within the crosshairs of US-led global order that ostensibly promotes economic and political freedom.

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Triggered by the pandemic and with geopolitical competition taking root, localisation is now in play as it became unpalatable for the West to be sourcing masks from China or gas from Russia. Ironically, the Chinese have led the way in this area with its concept of “dual circulation”, which has the idea of control over its own supply chains and clustering production and consumption embedded within it, a lesson the rest of the world learnt as nations and MNCs adapted first to pandemic reality and to avoid political tripwires currently.

To be sure, relatively lower labour and land costs versus the complexity and cost of global supply chains and freight through the South China Sea, coupled with technology such as additive manufacturing (3D printing) could facilitate regionalising production and manufacturing. Climate change and ESG require local solutions even if policies require global coordination. Stakeholder capitalism has also reared its local community head, as will blockchain and other decentralised networks for moving and sharing data — enabling far-flung geographies to globalise while staying local.

In Foroohar’s world, countries that can “leverage network power to ensure they have enough food, fuel and consumer demand will be best off”. Such networks include financial, production and social ones. Both companies and countries that own their own networks with allies will succeed. Companies from Johnson & Johnson, Volkswagen, Chanel, Zegna and Tesla are moving or have moved production in-house and are trying to source and control more raw materials. Do countries choose to stay on Swift or move to CIPS, which is China’s payment system?

Can’t help falling in love

The Straits Times Index has finally slipped below 3,000 points during the cruel month of October. So where do we sit now? At the edge of the precipice as the West declines and falls into protectionist networks? Coincidentally, this year’s feng shui almanac from CLSA (the firm formerly led by my British dinner companion) seemed to play out so far for Asian markets for January to September. If the forecasts are correct, October was the bottom (at least for 2022) before a rebound towards the end of the year.

With cash levels up across the board for institutions, wealth managers and retail investors (some of whom have rightly used their CPF to buy SGS Bonds yielding above 3.5%), there is dry powder all around if war drums start beating. For all practical purposes, the economic war is already well underway as growth and globalisation have gone out of fashion and networks like those of the chip sector reordered. For those like myself who love stocks and enjoy a spot of volatility from time to time, we know that there will be winners and losers in this realignment.

Singapore’s foreign policy of not choosing to side with China or the US will be tricky but beneficial. A core long STI bet, given yields of more than 4%, still works for me. But for stock picks amid the volatility following the recent correction, I am sticking to more S’s: ST Engineering (long cash and long arms), Singapore Exchange (volatility is good business) and Sembcorp Industries (energy transition is on the run). Angels may yet fear to tread but I like buying when others are selling.

Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest

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