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Thanks to trade war, Southeast Asia has an investment boom

Saturday - 27/10/2018 02:19
Southeast Asia is seeing a boom in foreign direct investment as the intensifying trade war between the US and China prompts companies to shift production to the region.
Thanks to trade war, Southeast Asia has an investment boom
Thanks to trade war, Southeast Asia has an investment boom
Vietnam saw manufacturing inflows jump 18% in the first nine months of 2018, driven by investments including a USD1.2b polypropylene production project by South Korea’s Hyosung Corporation, according to a note from analysts on Monday (22 October).

In January through July, Thailand’s net foreign direct investment (FDI) rose 53% from a year earlier to USD7.6b, with manufacturing inflows surging almost five times, according to central bank data. In the Philippines, net FDI into manufacturing surged to USD861m in the same period from USD144m a year earlier.

Southeast Asia is finding there is some upside to the trade war, as it becomes an alternative base for firms relocating production away from China to avoid levies. About one-third of more than 430 American companies in China have or are considering moving production sites abroad amid the tensions, according to a 29 August to 5 September survey.

Australia’s S&P/ASX 200 Index fell 0.65% on Tuesday (23 October) morning to 5,866.80 after most US shares declined ahead of a slew of key earnings reports this week (ending 26 October). The gauge closed on Monday (22 October) 0.58% lower at 5,904.94.

South Korea’s Kospi Index fell 1.27% to 2,134.26 on Tuesday morning after advancing 0.25% to 2,161.71 the previous session.

The Taiwan Stock Exchange Weighted Index (Taiex) closed on Monday 0.55% higher at 9,974.28.

CHINA & HONG KONG

China stocks jumped the most since March 2016 after top officials moved to shore up the economy and offer support to the struggling private sector.

The Shanghai Composite Index surged 4.09% on Monday (22 October) and extending Friday’s (19 October) 2.6% gain, after sinking to a four-year low last week (ended 19 October). A measure of 10-day volatility also climbed to the highest since March 2016.

China President Xi Jinping vowed “unwavering” support for non-state firms over the weekend, the country’s stock exchanges committed to help manage share-pledge risks, and the government released a plan to cut personal income taxes. That follows a rare coordinated effort from top financial officials on Friday to support what has been the world’s worst-performing equity market.

At least 20 brokerages, which are among the biggest lenders to private firms trading on the mainland, surged by the daily 10% limit. Moves by authorities to reduce stock-pledge risks should stabilise the equity market and help lift valuations for Chinese brokers, according to market watchers.

Consumer-related shares climbed amid expectations personal income tax cuts will give China’s citizens more spending power. Liquor-maker Luzhou Laojiao Co Ltd rallied 7%.

China’s stock market tumbled at the fastest pace worldwide this year as trade tensions, weakening economic growth and a wave of forced selling rattled investors. Losses accelerated this month as traders zeroed in on the risks associated with USD600b of Chinese shares that have been pledged as collateral for loans.

The Shanghai Composite Index’s 10-day volatility surged above 45% Monday, the highest level among benchmark equity gauges in 47 Emerging Markets and Developed Markets, up from 17th-highest at the start of the year. The wild trading evokes the gut-churning price swings that followed the bursting of the equity bubble in mid-2015.

Hong Kong shares also climbed, with the Hang Seng Index rising 2.32%. Sino Biopharmaceutical Limited and Geely Automobile Holdings Limited were the top gainers with gains of at least 7%.

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