Asiamoney Brokers Poll 2018: Asia finds silver lining in US-China trade spat
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Asiamoney Brokers Poll 2018: Asia finds silver lining in US-China trade spat

Top-rated strategists – as ranked by the Asiamoney Brokers Poll – see opportunities for smaller Asian economies to lure manufacturers away from China during the latest dispute.

By Morgan Davis


A US-China trade war, while unsettling for global markets, throws up opportunities for low-cost Asian economies: money flowing out of China means money up for grabs. 

“If there’s a silver lining, it’s that it will be good for emerging markets,” says Alfred Dy, Philippines strategist at CLSA. Emerging and frontier markets in southeast Asia, such as Vietnam, appear well positioned to pick up any shift in manufacturing and investments away from China.

“Since we are not the direct target of the US administration, we believe that Thailand and Asean can be potential beneficiaries,” says Suchart Techaposai, Thailand strategist at CLSA.

When it comes to foreign direct investment inflows, China is easily the leader of the pack in Asia, and it would be impossible to divert all of this investment to other countries in the region. To put this in perspective, China received $136 billion in FDI inflows in 2017, while Hong Kong received a further $104 billion, according to the UN’s World Investment Report 2018. 

Within southeast Asia, Indonesia received $23 billion, Vietnam attracted $14.1 billion, the Philippines and Malaysia each took in $9.5 billion, and Thailand $7.6 billion.

Vietnam envy

Vietnam is the envy of its neighbours, thanks to its knack for attracting FDI; it offers tax incentives and improved infrastructure in places where investors want to locate their factories.

“Vietnam might continue to be an outperforming country,” says Hoang Viet Phuong, Vietnam strategist at Saigon Securities Inc, considering the growth benefits of the trade war.

Hoang is bullish regarding Vietnam’s potential, going so far as to predict the country’s rise from frontier market to emerging market in the next couple of years. 

That would mark an important promotion for Vietnam because inclusion in the MSCI emerging market index, which is widely tracked by international investors with billions of dollars, would automatically lead to more funds pouring into Vietnam’s stock market.

In the long run, Hoang predicts that more factories will relocate from China to Vietnam, boosting wages in rural parts of the country. Several South Korean groups, including LG, have already built factories and committed to big investments. In 2018, South Korea’s Hyosung Chemical Corp received approval to build a $1.2 billion petrochemical complex in Ba Ria Vung Tau.

Manufacturing accounted for 46.2%, or $14.2 billion, of registered FDI in Vietnam in 2018, says Hoang, followed by real estate with 21.3%, or $6.5 billion, and the retail sector with 10%, or $3.1 billion. 

If we believe US president Donald Trump’s policies are going to lead to global protectionism, then this will be the case in other countries as well - Vincent Chen, Yuanta

Samsung has been a consistent presence in Vietnam since starting production in the country in 2012. The company is reported to be building a third factory in Vietnam for phone production, after closing one down in China, says Hoang.

“It’s a key example of how Vietnam can ratchet its way up the global value chain by aggressively attracting foreign direct investment,” she says.

China’s GoerTek, a leading equipment supplier to Apple, plans to move its AirPods production base to Vietnam, according to media reports. The number of factories from Vietnam listed on the Apple supplier roster has increased from 16 in 2015 to 22 in 2018. 

Mobile phone and IT products accounted for about one third of Vietnam’s total exports in November.

Ivy Ng, Malaysia strategist at CIMB Investment, is equally optimistic about the opportunities for Malaysia.

“If this is prolonged, there is a potential growth area for Malaysia in the form of attracting manufacturers who want to diversify their earnings base in the region,” she says. 

“In the initial period of the trade war, some people did not expect it to last this long. Now people are thinking this may be prolonged, and that’s why we’re seeing more enquiries.”

The migration of manufacturing will depend on the industry, as well as the evolution of the trade war, cautions Vincent Chen, Taiwan analyst at Yuanta. For instance, southeast Asia has been good for textile companies, but technology development has been on a smaller scale, he says. Many Asian countries are limited in what they can do with tech because they don’t have enough workers or capacity to meet the volume demands of migrating companies. 

Realistically, such tech production would be more likely to happen in Mexico and South America, Chen says.


Even if some manufacturing can be shifted around Asia, companies hoping to sell products to US consumers may also need to consider having final assembly of their goods in the US. The same may be the case for Europe.

“If we believe US president Donald Trump’s policies are going to lead to global protectionism, then this will be the case in other countries as well,” says Chen.

Most Asian countries outside Greater China say the trade war has had little direct impact so far. Some electronics companies, for instance, have seen a slight decline in their exports to China, but exports to the US remain steady, says Techaposai.

But if the trade war continues, growth will inevitably slow in the region.

“If China’s growth slows, there’s an effect on everyone,” says Patrick Yau, Singapore strategist at Citi. “What’s going on in China is extremely important.”

Adrian Joezer, Indonesia strategist at Mandiri Sekuritas, agrees. 

“We are not an export country,” he says, “but indirectly if China slows down, it has more impact than the US economy because we’re more connected.” 

Every Asian country will be the same, they will want foreign direct investments while the trade war is going on. Everyone wants FDI - Adrian Joezer, Mandiri Sekuritas

Any manufacturing benefits that countries such as Malaysia or Vietnam receive will only serve to cushion the downside of the trade war, admits Ng.

“The concern here is that if China is affected by the trade war, the demand for products from Malaysia could also be affected,” she says.

Some of the products made outside China may still ultimately be going to China for final assembly before export, Ng points out.

“For Malaysia, we could benefit in some parts, but at the same time we are not totally immune to the trade war if it escalates. At the end of the day it’s going to hurt the global economy.”

Given the infrastructure needs in much of the region, China’s smaller neighbours will continue to trumpet their relative advantages to attract investment.

“Every Asian country will be the same, they will want foreign direct investments while the trade war is going on,” says Joezer. “Everyone wants FDI.”

Tax incentives

He points out that the Indonesian government, for instance, has been quick to focus on attracting investors with tax incentives. 

Indonesia has offered tax holidays for the last few years; in 2018 it simplified the procedures and clarified how different-sized investments would qualify for different lengths of tax exemption or tax reduction.

“This will be the key for 2019,” says Joezer, adding that Indonesia and many other countries in the region will be holding general elections next year. Turning the tap on for foreign investments will provide a boost to Indonesia’s economy, which has been battered by the emerging market downturn this year, he says.

Malaysia’s new government has also made a concerted effort to be more transparent and reduce corruption, says Ng, and has pushed its new ‘Industry 4.0 blueprint’, which focuses on small and medium-sized enterprises in the manufacturing sector.

Thailand’s military rulers have also tried to lure foreign investment. The country is targeting high-value investment in the eastern seaboard area by offering incentives to investors, says Techaposai. 

The Eastern Economic Corridor, as the area is known, is a developing economic zone that Thailand wants to use to build export-oriented companies. The government is also keen to promote new industries, including healthcare and aircraft maintenance, in addition to the successful auto, petrochemical and logistics sectors, says Techaposai. 

Logistics infrastructure, and an ease of doing business, will keep Thailand competitive in southeast Asia, he adds.

Despite these potential opportunities, Asian strategists are just as quick to say they hope to see an end to the trade war.

“In the short term, because Vietnam is located next to China, we will be affected negatively,” says Hoang.

The trade war has affected overall sentiment, and investors worry about contagion risk, which has already led to a weakening of local currencies.

“Wherever there are concerns in the geopolitical picture, it really affects a lot of the smaller markets,” says CLSA’s Dy. “I’m hoping that there should be some resolution somewhere.” 

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