Research Highlights
TAIWAN: Economic and cross-strait risk on the rise
5 December 2011: Taiwan's presidential race is tightening, with Tsai Ing-wen running neck-and-neck with sitting President Ma Ying-jeou in most polls. We still think Ma has an edge. But Taiwan risks will be on the rise in 2012 no matter who wins in January. Low consumer demand from the West and weaker growth in China means economic difficulties for Taiwan. And the likely divided outcome of legislative elections will make it difficult for whoever wins to enact preferred growth policies. While the relationship with China will likely remain stable, the risks to that outlook are on the rise as well. A Tsai victory would bring renewed uncertainty and a slower pace of economic concessions between the two sides. Beijing prefers stability in the relationship and if Ma wins the cross-strait risk will be lower.
KUWAIT: New government to contain unrest, early Parliamentary elections likely
1 December 2011: In response to growing risks of unrest, Kuwait's ruler appointed Sheikh Jaber al Mubarak al Sabah to head a new government. Opposition forces will view this as a conciliatory step that could alleviate recent political tension. The new government is likely to dissolve Parliament and call for new elections in the next two months. More broadly, the appointment of Sheikh Jaber al Mubarak, a member of the al Hamad branch, limits the prospects of Sheik Nasser al Muhammad becoming the next ruler or the crown prince.
THAILAND: Amnesty flop shines light on uneasy peace
23 November 2011: Former Prime Minister Thaksin Shinawatra's statement that he would refuse any amnesty plan scheduled for the King's birthday on 5 December removes the immediate threat of a distracting political battle over plans to bring the former leader back home. More importantly, it reveals how uncertain the government is about its relationship with both the monarchy and the military, and that any real compromise between the country's main political players that would bring about longer term stability remains elusive.
CHINA: Changes at head of NOCs positive for corporate reforms
23 November 2011: China's largest oil and gas company, CNPC, recently set up a board of directors following similar moves by Sinopec and CNOOC this summer. All three companies now have a chairman and a new general manager whereas in the past one person held both titles. Creating boards and breaking up the power of the top leaders in China's state-owned firms has been an ongoing priority for the state-asset watchdog in a bid to curb corruption and promote efficiency in China's largest corporations. The move is a small step in that direction that will have a limited impact in the short term, but will ultimately be positive for corporate discipline.
CLIMATE CHANGE: Risk of acrimony at Durban on the rise
22 November 2011: The 17th Conference of Parties (COP 17) under the United Nations Framework Convention on Climate Change (UNFCCC) will kick off on Monday, 28 November and run for two weeks. Expectations are already at rock bottom regarding an international climate change architecture at the summit, and there is no reason to expect any upside. Instead, the risk of the conference breaking down in acrimony will be higher at Durban compared to last year at Cancun, in large part because this year's summit will be the last attempt to extend the Kyoto Protocol before it expires at the end of next year. Kyoto will not be extended because most large industrialized countries (outside of the EU) have effectively abandoned it, but developing countries continue to push for its extension and Durban will represent their last-ditch effort to preserve it. These developments imply that climate policy will continue to be guided by national plans that are uncoordinated with one another and are more modest in scope and vulnerable to reversal. As a result, climate policy uncertainties for companies will be elevated for the foreseeable future.
EGYPT: Military unlikely to delay elections, but instability will rise
21 November 2011: For the first time since February, Egypt's transition process is at risk. By trying to impose constitutional principles that give the military wide powers, then attacking and killing many protesters who demonstrated against these principles, the ruling military council overplayed its hand, and Egypt's young revolutionary activists have returned to Tahrir Square in large numbers. Instability risks are rising. If the parliamentary election process starts as scheduled on 28 November in the current context, it will lack credibility among a large portion of the population and will likely be violent. On the other hand, if the military council gives into protester demands to appoint a national salvation government-one with more power than the current government-the Muslim Brotherhood, which is poised to do well in elections, will likely cry foul. Faced with bad options, the military council will likely try a "centrist" approach; it will likely announce cabinet changes and commit to presidential elections by mid-2012, while going ahead with the parliamentary elections.
BRAZIL: Wave of corruption scandals slow trend toward effective public governance
17 November 2011: Six ministers have been forced to resign since President Dilma Rousseff assumed office in January, and a seventh could be on the way out this week. All with the exception of one has been driven out by allegations of corruption or improper conduct. The record number of resignations is in part driven by a President who takes a tougher stance against corruption, but the phenomenon is parcel to a larger story. The recent wave of scandals has a lot to do with a public sector awash with more revenue (which creates more opportunity for corruption), combined with a greater institutional capacity from agencies tasked with oversight responsibilities to detect corruption. Yet an emerging middle class that is holding politicians accountable to higher quality of public services does suggests Brazil will ultimately remain on a slow but steady path toward more effective governance. In the near term Rousseff's decision to slowly replace some political appointments with technocratic ones has yet to generate difficulties within governing coalition, but this could change should her approval ratings drop next year.
RUSSIA: WTO accession terms agreed upon
14 November 2011: On 10 November Russia's working party at the World Trade Organization (WTO) formally accepted Russia's accession package - a series of documents detailing the terms of Russia's accession. This followed the formal signing on 9 November of an agreement between Russia and Georgia regarding the treatment of disputed territories South Ossetia and Abkhazia, which had been the remaining obstacle to accession. In a reversal of its most recent stance, Russia reconfirmed its earlier commitment to join the Information Technology Agreement (ITA) upon accession. Investor sentiment, particularly in the IT sector, will improve although economic benefits to Russia's bottom line will be incremental.