Uncategorized

A WORLD IN TRANSITION

INTRODUCTION:

BIG TRANSITIONS ARE BETTER EMBRACED THAN RESISTED

BY ROB COX

The dictionary defines transition as a “change from one state or condition to another.” That sums up the world as 2022 arrives. Whether it is the move away from an economic system reliant upon hydrocarbons, vanquishing the Covid-19 plague or central banks ending the free-money era, extraordinary shifts are occurring across the planet that will shape markets, corporate finance, politics and economies well beyond the coming year. These are the themes that inform Reuters Breakingviews’ annual book of predictions and prescriptions: “A World in Transition”.

The extraordinary actions required to drive these epochal trends are being taken now, even if it will be years or even decades before achievements can be meaningfully measured. Inevitable transitions, like the one toward renewable energy, are better embraced than resisted. Investors and entrepreneurs who can adapt to change and its concomitant upheaval will reap the greatest rewards. But they must be prepared to make sacrifices along the way. Without social inclusion, these transformations may lead to violence.

Efforts by governments and companies to reduce carbon emissions and reach net zero by 2050 or sooner to limit planetary frying to 1.5 degrees Celsius above pre- industrial levels will continue to dominate the financial and business landscape in 2022. Switching away from coal, gas and oil is a priority. But every sector, including heavy industries like steel and cement, transportation, agriculture and banking, will soon need to make huge commitments to meet the lofty ambitions of the next generation. Our columnists explore all of these. 

At the same time, inflation is less quiescent than in the past couple of decades. Central banks will have to start pulling away the punchbowl, which has broad implications for the cost of capital (it goes up!) and the price of money. Speaking of which, money itself will go through a transformational period as the Federal Reserve, the European Central Bank and other monetary authorities try to keep up with the emerging dynamics of crypto and digital currencies.

A third year of the pandemic, with the persistent threat of new, more virulent strains, continues to dramatically accelerate the shift to digital everything. The winners and losers of this transition will become more evident in 2022. Quasi-monopolies – like Amazon.com in delivery and web-services; Meta, the company formerly known as Facebook, and Alphabet in advertising; and Microsoft in workflow – were given extraordinary boosts by state-mandated shutdowns. Governments face a make-or-break year to regulate these multi-trillion-dollar behemoths. Microsoft under Satya Nadella is our pick to manage these headwinds best.

And even as people trickle back to offices, post-pandemic dynamics in communications, training, travel and social interaction are permanently reshaping the workplace and productivity. This has implications for the nature of labour, property, urban planning and beyond. It also poses new challenges to leaders, none of whom were trained at Harvard Business School or INSEAD to run sprawling organisations of employees working individually from home. That’s why we’re predicting high CEO turnover, robot investment bankers and a return to offshore jobs. 

The increasingly chilly war between the United States and China will dominate international trade and geopolitics. The kerfuffle over U.S. nuclear-submarine sales to Australia and America’s shambolic retreat from Afghanistan offered glimpses into the fractious nature of the Western alliance. With Xi Jinping set for a third term (if not life) as China’s president, U.S. President Joe Biden has a chance to reach détente of some sort to cooperate on climate change, the pandemic and other priorities. But with Biden’s own party facing a trouncing in November’s congressional elections, his hands may be tied. On the plus side, European leadership will have a chance to consolidate as French President Emmanuel Macron likely wins a second term in May, Germany welcomes a new chancellor after 16 years with Angela Merkel at the helm, and Italy chooses its next president.  

Success will require extraordinary social inclusion. Governments, companies and taxpayers (especially the richest) have to proactively prepare for the sacrifices that are needed to prevent the earth from scorching, while delivering greater equity, financial inclusion and social justice. Failure to do so will lead to civil unrest or worse. In addition to being terrible for business, that would torpedo more existential goals like limiting global warming, whose deleterious effects will be disproportionately borne by the world’s poor. Here’s hoping the business world and financial markets help guide the way to a fairer, greener and more just society in the year ahead. 

First published January 2022

CONTENTS

ECOLOGY

Climate-change money will flow freely to Plan B

ESG acronym is due for a spin off of its initials

Climate M&A will shift from risk to opportunity

Consumer giants will be in “plastivist” crosshairs

Forget COP26. The world needs COPPER 26.

WHEELS

Combustion engines are carmakers’ toxic assets

Mammoth re-engineering project begins: Germany

Nio’s European road-trip will earn bragging rights

Booze to batteries will measure China’s transition

Big Meat will channel VW-Tesla in alt-protein war

DIGITAL

Microsoft and Nadella to be tech’s 2022 standouts

TSMC can fix Taiwan’s stalled green transition

Ant will be best among China’s BAD bunch

India’s tech bubble will burst

Zuckerberg has Metaverse rivals who mean business

Live now, pay later is fintech’s latest extension

MONEY

Inflation genie is going to linger in 2022

The cult of revenue is flying in thin air

Toshiba clears way for Japan’s next big buyout

Vulture funds will have to learn how to fly again

Macau watchdogs will double down on digital yuan

Financial products we’d rather not see in 2022

POLITICS

Xi’s 2022 GDP target will be moment of truth

Brace for a $600 bln Chinese escape from New York

Biden and business are midterm election pair trade

Qatar’s World Cup will pay Gulf-wide dividends

Cox: French finance will take an electoral pause

Riyadh will flip from no-go to FOMO for business

WORK

Big Quit sends world’s back office back offshore

Great CEO resignation invites the great agitation

Banker pay surge prompts rise of the robot analyst

Morgan Stanley will put a new face at the helm

Not all merger boutiques will be equal in 2022

Fed will have to put inclusive jobs on back burner

OTHER SHIFTS

Shipping giants will plot course for landbound M&A

Data hunters will be Big Pharma’s next prey

Canada’s weed lead is running out of puff

Shop spree will stuff landlords in bargain bin