There’s been one clear winner in the US-China trade war so far, says Chris Matthews on MarketWatch – Vietnam. The Southeast Asian country has become “a popular destination for new manufacturing investments as multinational firms seek to reorganise their supply chains to avoid US tariffs on Chinese exports”.
Labour costs in Vietnam are still low compared with China, while business is considerably easier compared with other low-cost locations, such as India. This meant that the country was already attracting manufacturers, but the trade dispute has accelerated the process. And even if China and the US come to an accord, the trend is unlikely to reverse.
“A lot of US companies will be thinking very hard about their supply chain and they want to reduce their dependence on China,” Laurent Saltiel of AllianceBernstein, a fund manager, tells MarketWatch. “It’s too risky to be exposed to just one country.”
The results are already showing up in the trade data, adds the Financial Times. “Export growth has collapsed across Asia this year,” but “Vietnam is an exception.” Shipments of goods such as phones, computers and electronics have all continued to record strong increases. Exports to the US – Vietnam’s number-one trading partner – have outperformed: its trade surplus with America is on track to reach $50bn this year – not a trivial amount for a $240bn economy.
These figures have already caught the eye of Donald Trump: back in June, he berated the country for treating the US “‘even worse’ than China on trade” and imposed huge tariffs on steel imports. But Vietnam quickly responded by pledging to buy more from the US in the hope of tempering Trump’s wrath.
Officials reiterated that commitment again last month, including a plan for a $5bn liquefied natural gas terminal and power plant that would increase imports from America while helping to meet Vietnam’s rising demand for energy.
The next big thing
It remains to be seen how much Vietnam will really benefit from US-China tensions – but many investors see it as the developing world’s next big thing anyway, says Tom Stevenson in The Daily Telegraph. Growth is solid, debt and inflation are under control and the currency is stable. The population of 95 million people is young (half are working age, two-thirds under 35), educated and ambitious. Infrastructure is poor, but improving fast.
“The country has more going for it than any emerging market in Asia or anywhere else,” says Stevenson. MoneyWeek agrees. We suggest looking at Vietnam Enterprise Investments (LSE: VEIL), currently on a discount to net asset value of 11%.