Tuesday,  Sep 25, 2018,05:52 (GMT+7) 0 0
The worst has yet to come
By Ngoc Tran
Monday,  Aug 20, 2018,20:23 (GMT+7)

The worst has yet to come

By Ngoc Tran


Chua Hak Bin, a senior economist at Maybank Kim Eng, spoke with The Saigon Times on the trade war between the U.S. and China, and especially its impact on the stock markets in Vietnam. The economist, who served as director at the Monetary Authority of Singapore, came to HCMC last week for a conference on the prospect of the Asian stock markets in the last six months of the year. Excerpts:

The Saigon Times:  Do you thing the trade war will be extended to ASEAN?

- Chua Hak Bin: I suspect it's more of a China trade war. It's more about putting a check on China's technological supremacy. It's about putting a check on China's rise. The U.S. doesn't view the rest of the ASEAN countries in the same veil. They don't see them as a long-term threat. China's becoming so powerful and at the frontier of so many technological areas, that 5-10 years down the road it's possible China will be overtaking the U.S. in terms of technological supremacy, which is already happening in the area of artificial intelligence.

One shouldn't just see it in the view of a tariff war. It's really about a tech war. It's a digital Cold War. And from that point of view ASEAN is peanuts. It's not seen as a same threat. So Vietnam is nothing. And we will see FDI will leave China, and come to Vietnam in order to mitigate the effect of the trade war between China and the U.S.

Some companies may just all pull back on investment globally, and wait for things to be resolved. But in the medium term all companies will have to adopt a China Plus One strategy. And Vietnam or Thailand could be one of those beneficiaries. Because you want to make sure you diversify. You want to be able to produce for the U.S. market and not be subject also to high tariffs.

But how about the impact of the trade war especially on the stock markets in Vietnam, which has declined around 20% since March? 

- One has to be prepared that this could be a full-blown trade war. Because in September, which is next month, another 25% tariff rate could apply to US$200 billion worth of Chinese goods. And like it or not if that happens the Chinese stock markets will be hit; a lot of the ASEAN stock markets will also be dragged down as a result.  And the renminbi (Chinese currency) will have to fall under probably 5%-10%. Many other currencies will also have to fall, including the Vietnamese dong.

The stock markets are going to be very volatile. We need to be cautious. But of course with any correction, one has to be prepared for the opportunity that comes with it. Because over the longer term some Vietnamese companies will actually benefit.  

So is it the right time now to buy, or do we have to wait?

- No. You've got to be positioned so that you are not completely buying and then caught in a possible full-blown trade war. And yet you cannot go all cash because Trump can tweet the next day and say, "President Xi is my best friend. We should deal." And then the markets will rally.

It's a very binary outcome. You just have to position somewhere in the middle. You can play on sectors that are not right in the battlefield of the trade war. Take, for example, tourism. It's not a target point.

Besides tourism, which sectors can we enter now?

- It could be also sectors that you see that would benefit from a trade war. Because some of the orders would shift to Vietnam ... whether it's furniture, whether it's clothing … manufacturing … Industrial estate demand will also increase if you think that more companies will set up production in Vietnam.

How about the aviation sector? Can we buy VietJet or Vietnam Airlines?

- I don't know the specific company, but you can think, if tourism holds up, airlines would be doing fairly well. And if a full-blown trade war happens, just bear in mind that all prices will likely correct itself. Of course, you could think that if they carry a lot of air cargo that are coming from some of the companies that are affected by the trade war, they could be hurt too.

In general what is the best strategy now for the Vietnamese stock markets?

- To be somewhat cautious, to adopt a more middle view, then to take advantage of the volatility that's probably going to be prevalent in the coming months, to see which companies might actually benefit.

One cannot be just buying blindly now. There's a possibility that the worst is yet to come. If the 25% tariff is applied on US$200 billion of Chinese goods next month, as early as the second half of September, the Chinese market will probably take a sharp correction. It's very hard to argue that the ASEAN markets would be spared. The currency will also be under some pressure. One has to be prepared with some cash as well, in case there is a rally.

So which is the best month to buy: October, November, or December?

- I have no idea right now. I wish I knew. But obviously it depends on President Trump. It depends on whether China and the U.S. can come to a deal. I'm not a political expert to be able to say whether they can reach a deal.

It pays to be nimble and to have some cash positions ready, and not to be all-in.

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