These could be the beneficiaries of the trade war

By Kim Iskyan

No one wins in a trade war. Or… at least the participants don't. But there's plenty of scope for observers to benefit.

I've written a lot about the trade war (you can find my last update on it right here… and my colleague Brian wrote about the latest here).

In short, U.S. President Donald Trump has accused China of unfair trade practices. So on July 6, the U.S. began imposing 25 percent tariffs on as much as US$34 billion worth of Chinese exports. China's answer was a similar 25 percent tariff on US$34 billion worth of U.S. exports.

Trump has also green-lighted another round of tariffs (10 percent) on as much as US$200 billion worth of Chinese imports to the U.S.

Now, I firmly believe there are no winners in a trade war. But there may be silver linings for others.

The silver lining for these two countries

Investment guru Mark Mobius, one of the grandfathers of emerging markets, said recently that he thinks some of the big beneficiaries of this trade war will be countries like Bangladesh and Vietnam.

The emerging markets fund manager, who ran Franklin Templeton Investments' emerging markets team from 1987 to 2016, recently told CNBC that he would buy "those countries who are going to be exporting to the U.S. instead of China - like Bangladesh, Turkey, Vietnam. They are all big producers of garments and shoes and consumer goods."

You see, with the U.S. and China slapping tariffs on each other's products, the prices of those products will go up. For example, garments from China that are exported to the U.S. will quickly become more expensive. So U.S. companies will look for other, cheaper sources of garment manufacturing… like in Bangladesh and Vietnam.

(I visited both Vietnam and Bangladesh last year. I shared my impression about the latter country - and its garment industry - right here.)

Increasing their exports to the U.S. would just be the latest boon for Bangladesh and Vietnam…

Vietnam, Bangladesh, as well as India are already expected to be the three fastest-growing economies through 2050 - averaging real economic growth of around 5 percent a year, according to a recent report by professional services firm PricewaterhouseCoopers (PwC).

That might not sound like much… but consider, the U.S., France and U.K. are all expected to grow less than 2 percent a year during this period.

Thanks to this growth, India is expected to be the second-largest economy in the world by 2050 - eclipsing the U.S., and behind only China (which will inevitably see its growth decline from its current level). Vietnam is forecast to move from the 32nd-largest economy to the 20th-largest. And Bangladesh could move from the 31st-largest economy to the 23rd-largest.

Where this growth will come from

Economic growth comes from two sources: Population growth and efficiency growth. (Broadly speaking, economic growth is a function of the number of workers in an economy, and their productivity.)

Shifting demographics in part drives economic growth. While population growth is falling in many major economies like China and Japan (reducing the labour pool and damaging productivity over the long term) it is forecast to rise in many other parts of the world. Countries in Southeast Asia in particular have good reason to be optimistic… and changing demographics in this region will likely boost economic growth over the next several decades, as we've written before.

For economies, productivity is often measured as the percent increase in GDP per hour worked. This can come from people working more efficiently, like through technological innovation. Higher productivity means a growing economy.

GDP in many of Southeast Asia's countries will also grow thanks to their youthful and fast-growing working-age populations, as shown in the chart below. More young workers boost output.

In short, if Vietnam and Bangladesh aren't on your investment radar yet - they should be.

And that's even more so because both of these markets have corrected sharply in recent weeks. On the back of trade war worries, Vietnam's stock index has fallen by more than 20 percent, while Bangladesh's is down 16 percent since recent highs.

But if Bangladesh and Vietnam profit from this trade war, expect their markets to head higher.

 

Kim Iskyan
Kim Iskyan is the publisher of Stansberry Churchouse Research, an independent investment research company based in Singapore and Hong Kong that delivers investment insight on Asia and around the world. Kim has nearly 25 years of experience as a stock analyst, hedge fund manager, political risk consultant, and financial commentator in more than half a dozen emerging and frontier markets. He's been quoted in the Economist, The New York Times, the Wall Street Journal, Barron's, and Bloomberg, and has appeared on Fox Business News, China Central Television, and Bloomberg TV, and has written commentary for the Wall Street Journal, Slate.com, Salon, TheStreet.com, breakingviews.com, and other publications. For more of his insights, Click here to sign up to receive the Asia Wealth Investment Daily in your inbox every day, for free.

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