Global Economy 2026: US & China Risks Shape India's Path

Source: cnbc

A landmark free trade agreement between the European Union and the South American Mercosur bloc is facing a potential two-year delay after EU lawmakers narrowly voted to send the deal for a legal review. The move escalates the conflict between member states over the pact, which took 25 years to negotiate.

The European Parliament voted 334 to 324, with 11 abstentions, to ask the EU Court of Justice for an opinion on the agreement. This action threatens to derail the largest trade pact the EU has ever signed, which involves Mercosur members Argentina, Brazil, Paraguay, and Uruguay.

Geopolitical Strategy Clashes with Farm Interests

The vote exposes a deep divide within the EU over the deal's strategic importance versus its economic impact on sensitive domestic industries, particularly agriculture.

Germany Pushes for Quick Implementation

Supporters of the deal, led by Germany and Spain, argue it is a geopolitical necessity. They see the agreement as a vital tool to counter global trade disruptions and secure access to critical minerals, thereby reducing economic reliance on China.

German Chancellor Friedrich Merz called the referral to the court regrettable, stating on social media that the EU assembly had "misjudged the geopolitical situation." He and other proponents insist the deal should be applied on a provisional basis to avoid further delays, warning that Mercosur governments are growing impatient after decades of negotiations.

French Farmers Fear Influx of Cheap Imports

Opposition is spearheaded by France, the EU’s largest agricultural producer. French farmers and their unions argue the agreement will open the floodgates to cheap imports of beef, sugar, and poultry, undercutting local producers who face stricter standards. This fear has fueled repeated protests across the country.

Figure 1: Protesters, including members of the French farm union FNSEA, rally against the EU-Mercosur trade agreement, citing concerns over its impact on domestic agriculture.

France's largest farm union, FNSEA, celebrated the vote as a victory. French Prime Minister Sebastien Lecornu echoed this sentiment, calling it "an important vote that needs to be respected."

Figure 2: French farmers have staged repeated protests, arguing the deal will undercut them with cheaper agricultural imports from South America.

The Legal Challenge and What's Next

The motion, brought forward by 144 lawmakers, asks the EU Court of Justice to rule on two key questions:

1. Can the agreement be applied provisionally before it is fully ratified by all member states?

2. Do its provisions illegally restrict the EU's authority to set its own environmental and consumer health policies?

The court typically takes around two years to issue such opinions. While the EU could theoretically apply the pact provisionally in the meantime, the narrow vote makes this politically challenging. Furthermore, the European Parliament would retain the power to annul the agreement later.

Figure 3: Opponents of the deal celebrate the parliamentary vote to refer the agreement to the EU Court of Justice, a move seen as a significant victory.

The European Commission, which negotiated the deal, stated that the legal questions raised in the motion have been addressed in previous trade agreements. The Commission now plans to engage with EU governments and lawmakers before deciding on its next course of action.

Speaking at the World Economic Forum in Davos, President Donald Trump called for immediate negotiations for the United States to acquire Greenland, presenting the idea to a global audience of business and political leaders.

"I'm seeking immediate negotiations to once again discuss the acquisition of Greenland by the United States, just as we have acquired many other territories throughout our history," Trump stated during his address in Switzerland.

The speech created a direct challenge for allied leaders at the forum, where the potential crisis over the Arctic island has become a major topic of discussion.

Greenland and NATO Security

Trump framed the potential acquisition as a strategic move essential for collective security. He argued that U.S. control of Greenland would strengthen the NATO alliance rather than pose a threat to it.

"This would not be a threat to NATO. This would greatly enhance the security of the entire Alliance," he explained.

At the same time, Trump reiterated his long-standing criticism of the military alliance, claiming the U.S. is not treated fairly. "The United States is treated very unfairly by NATO," he said. "We've so much and we get so little in return."

An American Economic Blueprint

Pivoting from foreign policy, Trump hailed his administration's economic record as a model for other nations, particularly those in Europe. He marked the one-year anniversary of his inauguration by highlighting a booming American economy.

"After 12 months back in the White House, our economy is booming," Trump said, listing several achievements:

• Exploding growth

• Surging productivity

• Soaring investment

• Rising incomes

• Defeated inflation

He positioned the United States as the world's primary economic driver. "The USA is the economic engine on the planet and when America booms, the entire world booms," he declared.

A Warning to European Leaders

Trump's address also contained a stark warning for Europe. He suggested the continent's liberal governments were on the wrong path and should follow his lead to achieve prosperity.

"I love Europe, and I want to see Europe go good, but it's not heading in the right direction," he said.

He criticized European policies on mass immigration and green technologies, which he has previously called a "scam." Trump argued that a focus on energy, trade, immigration, and economic growth is essential for a strong and unified West.

The president also signaled a domestic agenda aimed at affordability, hinting at policies that could target major stakeholders like Wall Street banks, investment firms, and health insurers, reinforcing his populist credentials before the Davos audience.

Germany has leveled accusations of war crimes against Russia, condemning a series of missile and drone attacks targeting Ukraine's energy infrastructure. The strikes have plunged large areas of Kyiv and other cities into darkness, cutting off heat and water supplies as temperatures drop to freezing levels.

Steffen Meyer, a deputy spokesman for Chancellor Friedrich Merz's government, stated that Germany condemns the recent barrages "in the strongest terms." He argued that by crippling essential services and hitting residential buildings, Moscow is using the cold as a tool of war.

"Russia is using the freezing cold as a weapon," Meyer told reporters in Berlin. "These are war crimes."

Diplomatic Focus Tested at Davos

The sharp condemnation from Berlin serves as an urgent plea for Western allies to refocus on the conflict in Ukraine, which is approaching its fourth year. The statement comes as many international leaders gather for the World Economic Forum in Davos, where attention has been drawn to other issues, including U.S. President Donald Trump's territorial claims on Greenland.

According to government officials, a planned meeting between Chancellor Merz and President Trump at the Swiss summit is now unlikely to happen after Trump's arrival was delayed.

Russia Admits Strikes as Kyiv Endures Blackouts

Russia’s Defense Ministry acknowledged the attacks in a statement on Telegram, describing them as a "massive strike." The ministry claimed its targets were industrial facilities along with energy and transport infrastructure used to support the Ukrainian military.

The impact on civilians has been severe. As overnight temperatures in the Ukrainian capital were forecast to fall to -14°C (7°F), millions have been affected by disruptions to power, water, and heating since two major attacks on January 9.

Ukrainian President Volodymyr Zelenskiy said that repair crews, emergency services, and energy company employees are working to restore supplies. As of early Wednesday, approximately 4,000 buildings in Kyiv were still without heat, and nearly 60% of the city lacked electricity following the latest assault.

Zelenskiy, a prominent figure at Davos in previous years, indicated he would likely cancel his trip to the forum to manage the country's response. However, he left open the possibility of attending if peace talks show significant progress.

US Peace Efforts Continue Amid Escalation

While Germany issued its strong rebuke, separate U.S. diplomatic efforts are moving forward. American envoy Steve Witkoff announced that he and Jared Kushner, Trump’s son-in-law, will travel to Russia on Thursday for discussions with President Vladimir Putin regarding new peace proposals.

In an interview with Bloomberg News in Davos, Witkoff stated that Trump remains "focused on that peace deal — it's a very, very important part of his agenda." He added that he planned to meet with Ukrainian officials later on Wednesday.

When asked about the recent Russian attacks, Witkoff avoided direct criticism. "First of all, they are in a war, so they are shooting at each other," he commented. "We don't condone that, we think it's unfortunate."

This is not the first time Russia’s actions have been labeled as war crimes. The International Criminal Court issued an arrest warrant for President Putin in March 2018 for alleged war crimes, specifically related to accusations of abducting children from Ukraine since the 2022 invasion.

Speaking at the World Economic Forum in Davos, Switzerland, U.S. President Donald Trump delivered a sharp critique of the European continent, stating it is "not heading in the right direction." The address on Wednesday, intended to highlight his economic policies, was largely overshadowed by fraying transatlantic relations and his administration's surprising push to acquire Greenland.

"I love Europe and I want to see Europe go good," Trump remarked during his speech at the annual global summit.

Donald Trump addresses the World Economic Forum in Davos, where he discussed his "America First" economic policies.

Greenland Strategy Dominates Discussions

While the speech was slated to focus on Trump's "America First" economic agenda, his interest in Greenland became a central topic. A senior White House official confirmed that Trump might also touch on Greenland and Venezuela, with a more detailed foreign policy discussion scheduled for Thursday.

Trump, who marked the end of a turbulent first year in office, confirmed his intentions at a news conference on Tuesday. He stated he would hold meetings in Davos concerning the Danish territory and expressed optimism that a deal could be reached.

National Security Cited as Primary Motive

The president framed the potential acquisition as a strategic necessity. "I think we will work something out where NATO is going to be very happy and where we're going to be very happy," he said. "But we need it for security purposes. We need it for national security."

This move has generated significant international reaction:

• NATO Concerns: Leaders within the alliance have warned that Trump's Greenland strategy could potentially upend the military coalition.

• Danish Response: In contrast, the leaders of Denmark and Greenland have proposed various ways to accommodate a larger U.S. presence on the strategically vital island, which has a population of 57,000.

Trump's speech was overshadowed by ongoing transatlantic tensions and his interest in acquiring Greenland.

When pressed on how far he was willing to pursue the acquisition—a topic Trump has previously linked to his frustration over not receiving a Nobel Peace Prize—he offered a simple reply: "You'll find out." His presence and agenda are set to overshadow the traditional discussions among global elites at the WEF, focusing on economic and political trends.

The S&P 500 has returned approximately 15% year to date (YTD) while Korea's Kospi surged nearly 70% from its 2022 lows on the back of artificial intelligence (AI)-driven semiconductor demand. The KLCI, meanwhile, has delivered single-digit gains and Bursa Malaysia continues to see more delistings than new entrants.

The conventional justification points to dollar strength and emerging market risk aversion. But the USD is down almost 10% this year against a basket of global currencies. A more structural reason deserves attention: the research coverage gap that leaves most Malaysian stocks invisible to institutional capital — and Singapore's aggressive policy response that Malaysia has yet to match.

Of the approximately 1,050 companies listed on Bursa Malaysia, almost three-quarters have zero analyst coverage, based on data from Refinitiv I/B/E/S. This is not a Malaysian problem alone. Across Asean, around the same proportion of listed companies lack coverage.

Policies towards capital formation

Singapore is receptive to this issue. In July 2025, the Monetary Authority of Singapore committed S$50 million (RM157 million) to enhance its Grant for Equity Market Singapore (GEMS) scheme, specifically targeting research coverage of mid- and small-cap companies. The enhanced programme pays research firms up to S$6,000 per published report on under-covered stocks, up from S$4,000 previously. Importantly, it allows both sell-side and buy-side firms to submit reports. The former can generate flows and commissions from trading (even if their recommendations do not perform well) and the latter typically put their money where their mouth is through direct fund allocations aligned with their views. The grant also extends to pre-initial public offering (IPO) companies to build coverage pipelines before listings. This sits within a broader S$5 billion Equity Market Development Programme, Singapore's most aggressive capital markets intervention in a generation.

Malaysia's equivalent is Bursa RISE+, launched in April 2025 as a successor to Bursa RISE. The programme aims to enhance the visibility of 60 publicly listed companies over two years, plus 40 private or pre-IPO firms annually. The earlier Bursa RISE initiative, which ran from 2022 to 2024, covered 60 companies and reported that a little more than two-thirds continued receiving research coverage after the programme ended.

But the maths is on a different scale. At 30 public companies per year, and even assuming only half of Malaysia's uncovered stocks merit institutional research, the current approach would take over a decade to meaningfully close the gap. Singapore's model, direct per-report funding that scales with output, can expand coverage as research capacity grows.

On market valuation and global institutional participation

The coverage gap creates a cycle that Malaysian capital markets practitioners know well. Companies without analyst coverage struggle to attract institutional attention, regardless of their fundamentals. Fund managers face career risk buying stocks without third-party validation and risk flying blind, especially international investors without boots on the ground. Lower institutional interest reduces trading volumes, widens spreads and depresses valuations. Not to mention that, typically, institutional investors also provide another form of corporate governance.

The coverage gap matters particularly for Malaysia's ambitions as a global hub for Islamic finance. The Securities Commission Malaysia lists 850 shariah-compliant securities on Bursa Malaysia, approximately 80% of all listings. Many lack analyst coverage.

For Islamic fund managers, this can create an uncomfortable constraint: restrict portfolios to the 80 to 100 large-cap shariah stocks with coverage, sacrificing diversification, or venture into uncovered names. International Islamic funds from the Gulf states often filter for analyst coverage as a first screen, excluding most of Malaysia's compliant universe before fundamental analysis begins.

Scope for performance and trade-offs

Analysis of Asean equity returns over the past five years shows that covered and uncovered stocks delivered nearly identical average returns of approximately 40%. But the dispersion tells a different story. Return volatility among uncovered stocks runs 48% higher than covered names. The 10th to 90th percentile range of YTD returns spans -33% to +122% for uncovered stocks, versus -15% to +114% for covered ones. Both the upside and downside are amplified in the parts of the market that institutional capital cannot see. It reflects the scant information infrastructure and where both risks and opportunities lie.

The approximately 750 uncovered companies on Bursa Malaysia are not all penny stocks or shell companies. They include manufacturers, technology firms, consumer businesses and service providers. Many are profitable, growing and reasonably valued. They remain invisible not because they lack quality but because traditional research economics cannot reach them.

The economics that created this gap are structural and understanding why matters for any policy response. Research coverage follows liquidity. Academic research documents this relationship as an illiquidity premium, meaning less liquid stocks must offer higher expected returns to compensate investors for trading costs and information asymmetry.

Brokerages generate revenue from trading commissions, which are positively affected by institutional order flow. A stock trading RM10 million daily attracts coverage because the research pays for itself through commissions. A stock trading RM1 million daily does not, regardless of whether the underlying business is sound.

This creates a size threshold. Employing a single equity research analyst can run from RM700,000 to RM900,000 annually once you factor in salary, support staff, data subscriptions and compliance overhead. Each analyst covers 10 to 15 stocks. For a mid-cap Malaysian company with RM500 million market capitalisation and RM1 million to RM2 million average daily trading value, commission revenue from institutional activity rarely exceeds RM30,000 annually, a fraction of coverage cost. The economics only work above roughly RM1 billion market cap, which excludes most of Bursa Malaysia.

This structural unprofitability worsened after Europe's MiFID II regulations forced the unbundling of research from trading commissions in 2018. Global research budgets fell 20%-30%, with analyst coverage declining 6%-10% overall and disproportionately more for emerging market and small-cap stocks where economics were already marginal.

The coverage that disappeared is not coming back through market forces alone and is worth incentivising. Research coverage generates positive externalities beyond the private returns to brokerages and fund managers. Analysts serve as external monitors, flagging accounting irregularities and governance lapses that might otherwise go unnoticed. Covered companies face more scrutiny, which deters fraud and self-dealing. These are public goods — benefits that accrue to the market as a whole, not just to the parties producing or consuming the research — and contribute to overall capital formation in the region.

Scope for AI and fintech

Singapore's GEMS enhancement offers several design features worth examining. First, per-report funding that scales with output rather than curating a fixed list of companies. This allows coverage to expand as research capacity grows. Second, talent co-funding that builds analyst capacity rather than just redistributing existing coverage among the same companies. Third, pre-IPO coverage that builds the research ecosystem before companies need it, reducing the information asymmetry that disadvantages new entrants. This spills over into supporting the venture capital market as well.

Singapore's scheme also now includes digital platforms and systematic research providers, a nod towards technology-assisted coverage. The premise is that algorithmic approaches might extend research at lower marginal cost. Machine learning systems can process financial statements and flag anomalies across large universes of companies, and there is genuine value in automating routine monitoring tasks. But the application of AI to equity research faces significant challenges: large language models are prone to numerical errors (particularly problematic for financial data); the signal-to-noise ratio in financial markets is far lower than in domains where AI has succeeded; and the feedback loops required to train effective systems are slow and ambiguous. Reinforcement learning, which has transformed game-playing and robotics, struggles in financial applications precisely because market outcomes provide noisy, delayed signals that make learning difficult. And that is a feature of the financial markets, not a bug.

Bursa RISE+ represents a step in the right direction. The question is whether the current programme is sufficient and whether Malaysia will consider the design elements that give Singapore's approach more room to grow. The current divergence in policy designs between Singapore and Malaysia will likely widen the information gap between the two markets. For Malaysian investors and policymakers, the question is not whether the coverage gap matters — the academic evidence is clear that it does. The question is whether the current response matches the scale of the problem.

Source: Theedgemarkets