According to John Mearsheimer, a respected international relations scholar in the US, law and morals and ethics matter in the international system, except when they are in direct conflict with a nation’s own strategic interest. This with reference to an article penned by Oscar van Heerden and published by the Daily Maverick on Wednesday.
Van Heerden puts forward the “realist school” as the dominant theory, which states that the world is anarchic and that there is no global power to govern this anarchy. Therefore, individual nations must take care of themselves in the global system.
The point made by Mearsheimer is that respect for international law, morals and ethics are critical in the international system, but when all the above are in direct conflict with a country’s national interest, that country will invariably settle to defend its national interests first and foremost.
The “realist theory” casts light on the level and nature of intervention by the US and China in the Russia-Ukraine conflict. Ultimately, these countries’ respective national interests are currently prevailing over what military actions may be justified on ethical, moral or humanitarian grounds.
We witness a similar narrative with corporates that are exposed to Russia. As the list of companies quitting Russia grows by the day, differences in the degree of disconnection are spurring debate. According to the New York Times, companies that have paused operations or announced limited pull-outs are coming under pressure to make a more definitive break.
Back in South Africa from a more localised perspective, the RET faction is ratcheting up the protection of its self-interests, not caring about the law of the land. By wishing to be in the driving seat of power and have access to the public purse, that faction of the ANC (and the EFF), will frustrate the NPA and delay justice as much as possible.
In the midst – and perhaps because of – the dominance of national self-interests over morals, ethics and international law, global stocks posted their best three-day run since November 2020!
“In the 1930s, Adolf Hitler believed that his great-power rivals would be easy to exploit and isolate because each had little interest in fighting Germany and instead was determined to get someone else to assume the burden. He guessed right.”
– John J. Mearsheimer, American political scientist and international relations scholar
- Geopolitical tensions in the Ukraine continue to drive market volatility. Whereas commodity prices ended the week significantly off their recent highs, the MSCI was up 4.8% week-to-date on Thursday, with a month-to-date return of -0.25%.
- This as interest rates in the US increased by 25 basis points on Wednesday when the Federal Reserve signalled six more such hikes in 2022, launching a campaign to tackle the fastest inflation number in four decades as risks to economic growth mount. Encouragingly, however, is that the Fed believes the US economy is strong enough to withstand the rate hike cycle. Market reaction to the announcement was mostly positive, with the S&P gaining more than 2.2% on the day.
- There are reports suggesting the US believes China is “open to” supplying military equipment to Russia. Whereas sanctions against Russia may have a limited impact with the country representing less than 2% of global GDP, China, on the other hand, is a far more significant economy and an integral part of global supply chains. As such, sanctions imposed on China following any major military intervention in the conflict would be devasting to the global economy. All this negativity could cause investors to focus on the short-term, but this simple table of market recoveries following previous geopolitical crises, serves as a solid reminder for investors to stay the course.
- In China, Covid-19 outbreaks also pose a significant risk to the global economy. Widespread lockdowns could affect half of the country’s gross domestic product, with negative implications for economies elsewhere too. The province currently affected by the lockdown is a technology hub and accounts for 11% of China’s GDP or $1.96 trillion. There is a likelihood of a fallout for growth and inflation internationally, in the event that this lockdown policy by the central government persists.
- Meanwhile, US President Joe Biden announced an additional $800 million in security assistance to Ukraine on Wednesday, although his position on a no-fly zone did not change, even after Ukrainian president Volodymyr Zelensky’s urgent appeal to the US Congress for military help to fend off a Russian invasion. America will continue to give Ukraine weapons to fight and defend itself, offer humanitarian relief, and support Ukraine’s economy with additional financial assistance.
- Gracelin Baskaran, a development economist, and a bye-fellow in economics at the University of Cambridge, has argued that the current war between Russia and Ukraine, which has seen sanctions imposed against the Bolshevik country, could spur on the development of green energy. Russia is among the world’s top oil producers. Read more here.
- The IMF says a Russian default is “no longer improbable”. International reactions to the 2014 Crimean invasion, and generally low levels of borrowing, mean this is unlikely to trigger a systemic problem. Russia’s finance minister said half the country’s foreign exchange reserves have been frozen by sanctions. According to UBS, the other half is also affected as global banks are prevented from dealing with the Russian government.
- BMW has cut its car division’s 2022 profit margin forecast, making it the latest carmaker to warn of problems from ongoing chip shortages and new supply chain disruptions following Russia’s invasion of Ukraine. It now expects an earnings before interest and taxation margin of 7% to 9% for its car business rather than 8% to 10%.
- In line with global markets, the JSE rose this week, posting a gain of 1.6%. However, this overall result belies the tale of the various sectors. There has been a strong rebound in financials (up 5.1%) and industrials (up 4.1%) for the week, whereas commodity and gold shares suffered pronounced falls, with the resources sector declining 2.5%.
- Record 21% gains on Wednesday by the Naspers stable led the JSE to its first advance in four days. This comes after two days in which Naspers dragged the broader market lower – falling nearly 40% since the start of the year. Its recovery was boosted by Chinese officials’ pledges to boost the economy. Naspers is still down circa 25% year-to-date.
- New rules for managing Covid-19 in the workplace will come into effect when the national state of disaster is lifted. Employment and labour minister Thulas Nxesi published the regulations that include reaffirming employers’ rights to introduce vaccine mandates and tightening the grounds on which employees may refuse to get jabbed. Earlier this week, the state of disaster was extended until 15 April.
- The SA government is racing to devise new measures for managing the coronavirus pandemic to lift the national state of disaster. Health minister, Joe Phaahla, has released a slew of proposed changes to current health regulations, some of which have left experts baffled. The minister’s proposed regulatory changes cover rules for the size of gatherings, social distancing, quarantine and isolation, funerals, travel in and out of South Africa, and the handling of dead bodies.
- Meanwhile, the ANC is considering whether the leadership of the ANC Women’s League should remain in office. It has appointed former National Assembly speaker and current defence minister, Thandi Modise, to lead a task team to determine this. The move could result in the dissolution of the national executive committee of the women’s league led by embattled former social development minister, Bathabile Dlamini.
- South African president Cyril Ramaphosa has given Public Protector Busisiwe Mkhwebane ten days to provide him with valid reasons why he should not suspend her. This brings to a head a four-year battle with the graft ombudsman and comes after a parliamentary committee this week said it will proceed with a motion to impeach Mkhwebane on grounds of misconduct, incapacity, and misconduct.
- A soon-to-be-released study by the Government and Public Policy think tank predicts that South Africa has entered a phase of ongoing, violent instability as a result of ANC internal “tensions”. Read more here.
- Growthpoint Properties has said that infrastructure investments from government will go a long way in improving investor confidence, which is currently low. This comes as it reported a 5% increase in its interim dividend to 62c per share, as the operating environment in the retail and industrial sectors gained momentum. But its office market is still in the doldrums, with vacancies rising to a record 21.2% in the six months to December, from 19.9% as at June 2021. (Dynasty’s house-view funds have virtually zero exposure to the listed property sector).
Sources: Dynasty, BusinessLive, Bloomberg, The Economist, Reuters, UBS, Daily Maverick, New York Times, etc.