How the Trade War is Helping this Southeast Asian Economy

I was recently in New York City en route to an investment conference in New Orleans. And being the sneaker fan that I am, I paid a visit to the Nike Soho store on Broadway to pick up a ‘fresh pair’.

I was amazed at what I saw. It’s more than a store—an immersive, five-story, audio-visual experience. You can shoot hoops, run on a treadmill surrounded by LED lights, or even kick soccer balls wearing your favourite shoes.

As I meandered down the aisles trying out various sneakers, I couldn’t help but notice this small, recurring detail:

‘Made in Vietnam’ was printed in small letters inside every shoe.

This stood out to me not only because the One Road has an office in Ho Chi Minh City, where I spend most of my time, but because the last time I bought sneakers at Nike NYC, the labels in the shoes typically read ‘Made in China’, with the occasional ‘Made in Indonesia’.

Times have changed for Nike, but in fact they are part of a larger trend across the manufacturing industry:

Retail multinationals are moving out of China. Why?

Just mid-2018, the mainstream media was in a tense debate over whether President Trump would ‘fire the first shots’ of a trade war. News commentators appeared terrified by the prospect.

Even weeks after President Trump announced tariffs totaling around US$100 billion in July 2018, many analysts still didn’t want to admit that we were in a trade war. It took Chinese retaliation and another US$150 billion of tariffs before the mainstream came to terms with the obvious—that the U.S. and China were in a trade war.

Many predicted gloom and doom for the global economy.

Surprisingly, here in Vietnam, the view of the trade war has shifted from apprehension to cautious optimism—some may even say thinly-veiled glee—about what the trade war means for the domestic economy.

Now, companies with manufacturing operations in China, considered the ‘world’s factory’ these last three decades, have been steadily moving across the border to Vietnam and other Southeast Asian nations, fleeing rising costs and wages.

And Vietnam’s skilled and low-cost workforce, good infrastructure, stable government, and tax-free zones are just what many multinationals look for when scouting locations for factories.

Take a look at these charts:

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Vietnam has become more than just one of a series of Southeast Asian nations jostling for China-based manufacturing operations.

This has resulted in more and more cash flowing into the Vietnam, making its annual growth of 6.8% in 2017—the highest in 6 years—unsurprising.

And it’s not just multinationals that are benefiting; with more economic activity and FDI, a wide range of supporting industries are benefiting too.

That’s why a few years ago, I teamed up with S&P to build a Vietnam-focused ETF called the VN30 Equal Weight Total Return VND Index.

It aims to give investors exposure to companies that are high in quality but occasionally overlooked by large funds who don't have analysts 'on the ground'.

More on this later, and in the meantime, if you’d like to hear more about the VN30, you can contact us.

Peter Pham