Evolving Alliances and Why We’re Still Bullish Brazil

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IN THIS PUBLICATION

• China is worried about energy supply post-reopening.
• The foundations of a multi-polar world are being built in front of us.
• After 8 years of fiscal deficits, the federal government of Brazil is set to post a R$40B surplus this year.

This is the third installment of our new Geopolitical Update, with Cognitive Investments (where Jacob is Partner & Director of Geopolitical Analysis). If you want to subscribe to their full weekly report (called The Situation Report), you can subscribe here for free.

Local News of Global Impact

CHINA

• Aggregate financing, a broad measure of credit, was 1.31 trillion yuan ($193 billion) in December, below the median estimate of 1.85 trillion yuan and compares with 2.4 trillion yuan in the same month a year ago. Robin Brooks with a smart take: “China is a case study in how to look at lending. Credit growth (blue) is positive, but what matters for growth is whether credit growth is going up or down, i.e. the credit impulse (black). That impulse is deeply negative. There is NO credit expansion boosting China's GDP in '23.”

• Still on China, it ended an unofficial ban on Australian coal after customs officials in Guangdong gave local governments the go-ahead to clear Australian coal shipments. The move came about a week after the country’s national planning agency permitted a group of large state-owned companies to buy Australian coal again.
• China also urged domestic miners to boost their already record output. Chinese foreign ministry spokesperson Zhao Lijian, who gained prominence as one of China's most outspoken "wolf warrior" diplomats, has been transferred to its department that manages land and sea borders.

There are two things to note here:

• The broader point is that China’s softer tone in its foreign policy is now being backed up by concrete action.
• The second is that China is worried about energy supply post-reopening. This reprieve in Australia-China ties, while temporary, could be a major short-term shot-in-the-arm for the Australian economy.

VIETNAM

• Vietnam's parliament held an extraordinary session and formally approved the resignation of President Nguyen Xuan Phuc, state media reported. This is potentially a very big deal.
• Several companies I work with directly have focused on Vietnam as an alternative to China in recent years, but I have warned them that domestic political risks in Vietnam are opaque — but also suggest a power struggle at the top levels of government. It is difficult to conclude much from this dismissal, but it is clear confirmation that behind the scenes, Vietnam is experiencing significant political instability. Phuc was identified as being pro-business reform, which could suggest Vietnam is about to make it harder for foreign businesses to operate.

SWEDEN

• Europe's largest known deposit of rare earth elements — key for building electric vehicle batteries and wind turbines — has been discovered in northern Sweden, mining company LKAB announced.
• The Swedish company found a deposit of rare earth metals exceeding 1 million tons of rare earth oxides. Remember – rare earths are not actually rare. They are just costly and environmentally pollutive to refine. For this discovery to be important, Sweden/the EU would have to be willing to do the dirty work that China has embraced for decades and which has allowed it to build such a dominant position in rare earth supply chains.

TURKEY

• Turkish resident Recep Tayyip Erdoğan said Turkey will hold presidential and parliamentary polls on May 14, 35 days earlier than originally scheduled. It is not clear why Erdoğan is moving forward the date of the election.
• His comments about what is at stake are eye-catching: “2023 is the beginning of the Century of Turkey. That is what makes this upcoming election important and historical…Turkey is at such a crossroads that such opportunities come to nations once in a century.” Polls are very tight, especially in the presidential election, which will likely go to a second-round run-off on May 28th.