BTT (11th) - Malaysia-China Relations, Germany Coalition Collapse, ESG on Life Support

The week ending November 10, 2024, has been marked by significant developments across various regions, with notable highlights from ASEAN, Europe, and the realm of Environmental, Social, and Governance (ESG) issues.

Notably, the elephant in the room was the US Elections that happened on Tuesday Night, with Former President Donald Trump to become Future President Donald Trump. While US Elections was one of the largest news this week, I believe that it has been dutifully covered by tons of other media outlets. I will instead, be focusing on how Donald Trump's elections will affect ESG Policies.

The below are news articles that talks about Donald Trump's impact on certain topics:

Regarding ASEAN and Singapore - https://www.straitstimes.com/opinion/trumps-comeback-outlook-for-singapore-and-asean

Regarding China - https://edition.cnn.com/2024/11/07/china/china-second-trump-presidency-intl-hnk/index.html

Regarding Ukraine - https://www.npr.org/2024/11/07/nx-s1-5181985/2024-election-trump-russia-ukraine-war

[ASEAN] Malaysia-China Strengthen Ties

The recent strengthening of China-Malaysia relations has significant implications for Singapore, particularly in terms of economic dynamics and regional stability. Following Malaysian Prime Minister Anwar Ibrahim's visit to China, where he and President Xi Jinping emphasized mutual support and strategic cooperation, the evolving ties between Malaysia and China could reshape the geopolitical landscape in Southeast Asia.

As Malaysia enhances its partnership with China, Singapore may face increased competition for investment and trade opportunities. China has become a dominant trading partner for both Malaysia and Singapore, but Malaysia's deepening economic ties with China could lead to a shift in the balance of influence within the region. For instance, initiatives under China's Belt and Road Initiative (BRI), which includes infrastructure projects that link Southeast Asia more closely to China, may divert some economic activity away from Singapore. This is particularly pertinent given that Malaysia is strategically located along key maritime routes, making it an attractive hub for Chinese investments that could otherwise flow into Singapore (Cai, 2024). Moreover, as Malaysia takes on a more prominent role in ASEAN—having recently assumed the position of country coordinator for relations with China—Singapore must navigate its relationship with both nations carefully. Malaysia's leadership in ASEAN could allow it to shape regional policies that align more closely with Chinese interests, potentially sidelining Singapore's influence in favor of a more China-centric approach within the organization (IP24077, 2024). This shift may complicate Singapore’s efforts to maintain its status as a regional hub for trade and finance, especially if Malaysia's growing ties with China lead to preferential treatment for Malaysian businesses in Chinese markets.

Additionally, Singapore's historical relationship with China has been characterized by mutual respect and cooperation; however, rising tensions over issues like the South China Sea could strain these ties. Singapore has previously supported international norms regarding maritime disputes, which may conflict with China's assertive claims in the region (Wikipedia, 2024). As Malaysia seeks to balance its diplomatic relations between the West and China, Singapore will need to reassess its strategies to ensure that it remains a key player in regional geopolitics while fostering cooperative relations with both neighbors.

[EU] Germany's Coalition Collapses

Germany's political landscape has been shaken by the collapse of Chancellor Olaf Scholz's coalition government, a significant event that marks only the third such occurrence in the nation’s post-war history. The coalition, known as the "traffic light" alliance due to the colors of its constituent parties—the Social Democratic Party (red), the Free Democratic Party (yellow), and the Greens (green)—was formed after the 2021 federal elections when no party secured a majority. This coalition was intended to reflect a compromise between progressive social policies and fiscal conservatism, aiming to address pressing issues like climate change, economic recovery post-COVID-19, and rising energy prices exacerbated by the war in Ukraine (Schuetze, 2024; Tanno, 2024).

The coalition's disintegration was precipitated by deep-seated tensions over economic policies, particularly regarding the 2025 budget. The immediate catalyst was Scholz's dismissal of Finance Minister Christian Lindner from the Free Democrats, following long-standing disagreements over fiscal strategies. Lindner's insistence on adhering to Germany's constitutional debt brake—a limit on borrowing—contrasted sharply with Scholz's push for increased spending to stimulate growth and support Ukraine amidst ongoing geopolitical tensions. Lindner characterized Scholz's approach as reckless, while Scholz accused Lindner of prioritizing party politics over national interests (Ioanes, 2024; Karcher, 2024).

The fallout from this political crisis is profound. With the Free Democrats exiting the coalition, Scholz now leads a minority government reliant solely on the Greens for legislative support. This precarious situation complicates governance significantly; without a majority in the Bundestag, passing new laws will be challenging. Scholz has announced plans for a confidence vote scheduled for January 15, 2025. Should he lose this vote—an outcome many anticipate—it would likely trigger early elections by March 2025, significantly ahead of the originally planned timeline (Vock, 2024; CNN, 2024).

The implications of this collapse extend beyond immediate governance challenges. The political instability could embolden far-right parties like the Alternative für Deutschland (AfD), which have gained traction amid public dissatisfaction with mainstream parties. In recent elections, both far-right and far-left factions have performed well, reflecting a fragmented political landscape that may complicate future coalition formations (Economist, 2024). Furthermore, Germany faces pressing economic challenges: sluggish growth rates and rising inflation are straining public confidence in government capabilities to manage these crises effectively (Ioanes, 2024).

[ESG] ESG on Life Support?

Donald Trump's previous presidency had a profound impact on Environmental, Social, and Governance (ESG) policies, particularly regarding climate action. During his first term from 2017 to 2021, Trump adopted a skeptical stance towards climate science and prioritized deregulation over environmental protections. His administration's most notable action was the withdrawal of the United States from the Paris Agreement, a landmark international accord aimed at combating climate change by limiting global warming to well below 2 degrees Celsius above pre-industrial levels (Politico, 2024; Climate Change News, 2024). This withdrawal was formalized on November 4, 2020, just days after the presidential election, and marked the first time a country exited the agreement.

Trump's administration also rolled back numerous environmental regulations established under previous administrations. This included weakening the Clean Power Plan, which aimed to reduce carbon emissions from power plants, and rolling back fuel economy standards for vehicles intended to reduce greenhouse gas emissions (S&P Global, 2024). Furthermore, his administration sought to expand fossil fuel production through initiatives like opening up federal lands for oil drilling and promoting coal as a viable energy source. Critics argued that these actions not only undermined U.S. leadership in global climate efforts but also set back domestic progress towards renewable energy adoption (Time, 2024).

Looking ahead to a second term, Trump's campaign has reiterated his intention to withdraw from the Paris Agreement again. He plans to file for withdrawal on his first day in office, which would initiate a year-long process before the U.S. officially exits (Politico, 2024; Climate Change News, 2024). Additionally, there are indications that Trump may seek to withdraw the U.S. from the United Nations Framework Convention on Climate Change (UNFCCC), which serves as the foundation for global climate negotiations and includes countries that have not ratified the Paris Agreement (S&P Global, 2024). This move would significantly diminish U.S. participation in international climate discussions and could disrupt efforts to combat climate change globally.

The implications of these potential actions are substantial. A second Trump presidency could lead to a reduction in U.S. commitments to climate finance aimed at assisting developing countries in their transition to sustainable practices. It would also likely weaken international pressure on major emitters like China to enhance their climate action plans (Climate Change News, 2024). The absence of U.S. leadership in global climate initiatives could embolden other nations to relax their commitments as well, potentially leading to a domino effect that undermines decades of progress in international climate policy.

However, while researching ESG Impacts due to Donald Trump's Presidency, I found out an interesting statistics. Under Donald Trump, while clean energy capacity grew at a slower pace, it is still an impressive 15% p.a.

Donald Trump's Impact on Industries

Instead of breaking down 2 stocks to watch out for this week, I will instead be painting a Macro-Economic view on industries that will be impacted due to Donald Trump's Second Term.

Donald Trump's return to the presidency in 2024 is expected to significantly impact various industries, creating both opportunities and challenges. His administration's policies are likely to favor certain sectors while adversely affecting others, particularly in the context of deregulation, trade tariffs, and environmental policies.

Industries poised to benefit from Trump's presidency include energy, banking, technology, and defense. The energy sector, especially fossil fuels, stands to gain significantly from Trump's deregulatory agenda. During his first term, Trump rolled back numerous environmental regulations that restricted oil drilling, gas exploration, and coal mining. Analysts predict that a second term would see a continuation of these policies, which could boost production and profitability for major oil companies like ExxonMobil (XOM) and Chevron (CVX). Additionally, Trump's promise to eliminate restrictions on fossil fuel projects may enhance the market position of companies involved in natural gas and coal production.

The banking sector is also expected to thrive under Trump’s leadership. His administration is likely to ease regulatory burdens imposed by the Dodd-Frank Act, which was enacted following the 2008 financial crisis. This could lead to increased profitability for banks such as JPMorgan Chase (JPM) and Bank of America (BAC) by allowing them greater freedom in their lending practices and investment strategies.

In the technology sector, companies may experience mixed outcomes. While deregulation could reduce operational constraints for tech firms like Apple (AAPL) and Microsoft (MSFT), potential trade tensions with China could disrupt supply chains and impact profitability. Trump's previous tariffs on Chinese goods have already strained relationships with key tech suppliers, making this sector vulnerable to fluctuations based on trade policy.

The defense industry is another area likely to flourish under Trump. His administration's focus on increasing military spending would benefit defense contractors such as Lockheed Martin (LMT) and Northrop Grumman (NOC). Increased budgets for military projects could lead to substantial growth opportunities for these companies.

Conversely, several industries are expected to face negative impacts due to Trump's policies. The renewable energy sector could suffer significantly if Trump follows through on his plans to roll back funding associated with the Inflation Reduction Act. This legislation has been pivotal in driving investments in solar and wind energy technologies. Companies like NextEra Energy (NEE) and First Solar (FSLR) may find their growth prospects hampered if federal support diminishes.

The automotive industry, particularly manufacturers focused on electric vehicles (EVs), could also be adversely affected. Trump has criticized EV-friendly policies and suggested rescinding tax credits that incentivize EV purchases. This could slow the adoption of electric vehicles in the U.S., impacting companies like traditional automakers transitioning towards electric models such as Ford (F) and General Motors (GM). (One notable exception would be Tesla of course due to Elon Musk)

Additionally, industries reliant on international supply chains may experience disruptions due to renewed trade tensions. The chemical industry, heavily dependent on imports from countries like China, could face challenges if tariffs are reinstated or increased. Companies such as Dow Inc. (DOW) and BASF SE (BASFY) might see their profit margins squeezed due to higher costs associated with tariffs.

Topic to Ponder

Finally, a thought-provoking topic to consider this week is the role of technology in shaping future governance. As governments worldwide increasingly rely on digital tools for public administration and citizen engagement, it raises questions about privacy, data security, and the digital divide. How can policymakers ensure that technological advancements serve all citizens equitably while maintaining transparency and accountability?

Authored by: Lin Haoying

Thank you for taking the time to read the 11th edition of this newsletter! I created this platform as a personal initiative to stay informed about market news and general affairs. My hope is that you will gain as much insight from this journey as I have while compiling it. Currently, I am a student at the National University of Singapore (NUS) Business School, where I am pursuing a Bachelor of Business Administration with a major in Finance and a minor in Information Systems. My interests lie at the intersection of finance, technology, and environmental, social, and governance (ESG) issues. Future editions of this newsletter will focus on these three topics, providing deeper insights and analyses as I continue to learn and grow in these fields.

References

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AP News. (2024). Germany’s Scholz coalition government struggles amid economic woes. Associated Press. Retrieved from https://apnews.com/article/germany-scholz-government-coalition-collapse-struggling-economy-ca3ebd538bc0e71af272aa7f65b12c19

Time. (2024). What Trump’s presidency means for climate action. TIME. Retrieved from https://time.com/7174166/what-trump-presidency-means-for-climate-action/

IP24077. (2024). Malaysia-China Relations under Anwar Ibrahim's Unity Government: A Return to the Special Relationship. RSIS. Retrieved from https://www.rsis.edu.sg/rsis-publication/idss/ip24077-malaysia-china-relations-under-anwar-ibrahims-unity-government-a-return-to-the-special-relationship/

Wikipedia. (2024). China–Singapore relations. Retrieved from https://en.wikipedia.org/wiki/China%E2%80%93Singapore_relations

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Karcher, K. (2024). Why the German government collapsed and what to expect now. The Conversation. Retrieved from https://theconversation.com/why-the-german-government-collapsed-and-what-to-expect-now-243164

Vock, I. (2024). Germany coalition: Government on brink of collapse after key minister fired. BBC News. Retrieved from https://www.bbc.com/news/articles/c7v3r046pzzo

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