Trade-War Safety Zone Seen in Asian Cub Market Favored by Trump

(Bloomberg) -- The standoff between U.S. and China is shining a rare spotlight on a few corners of the emerging-market world poised to win bigger roles in global trade -- and fund allocations.

Vietnam, deemed worthy of a special mention by Donald Trump Monday, is already proving an outperformer, with its stocks losing 2% compared with 5% for the broader emerging-market index last week. The U.S. president warned that unless China accedes to his demands, its trade will flow into Vietnam and other countries.

Brazil and Ukraine are also being sized up as beneficiaries of the standoff between the world’s two largest economies as investors pursue war-proof strategies and places to escape the worst weekly losses in global stocks since December.

“It’s more important now than ever to look at EM not as one block that you can go in and out of, but to differentiate a little bit,” said Alexander Wolf, Hong Kong-based head of investment strategy for Asia at JPMorgan Private Bank. The fates of commodity producers and commodity exporters will diverge as well as those nations whose economies are tied up in the web of global trade manufacturing, he said.

U.S. stocks and commodities tumbled on Monday, and emerging market stocks and currencies fell to their lowest since January, after China reacted to Trump’s decision to raise tariffs by targeting some of the nation’s biggest exporters. U.S. shares briefly came off their lows after Trump indicated he’ll speak with China’s Xi Jinping at the end of June during the G-20 summit and said he hasn’t yet decided about fresh tariffs on the remaining $300 billion in Chinese imports.

Granted, the potential impact of higher trade barriers and a global slowdown couldn’t be more stark for emerging economies hitched to China’s growth engine. Even so, soybeans in Brazil, wheat in Ukraine and cheap labor in Vietnam are suddenly getting plenty of attention.

Trade-War Safety Zone Seen in Asian Cub Market Favored by Trump

Vietnam

“Many Tariffed companies will be leaving China for Vietnam and other such countries in Asia,” the U.S. president tweeted. “That’s why China wants to make a deal so badly!”

The Asian tiger-cub nation can replace Chinese trade to the U.S. for its “low value added manufacturing,” said Nader Naeimi, a Sydney-based money manager who oversees about $1 billion in a dynamic market fund at AMP Capital Investors Ltd.

Exports to the U.S. totalled $49.2 billion to the U.S. in 2018, compared with $46.5 billion in the prior year, according to Bloomberg data.

Brazil

Brazil may already have an edge as the world’s largest exporter of soybeans, according to JPMorgan’s Wolf. Premiums jumped last week as trade tensions fueled speculation that Chinese demand is on the rise.

Trade-War Safety Zone Seen in Asian Cub Market Favored by Trump

Ukraine

Stars may be aligning for Ukraine after agreeing an IMF program, according to Per Hammarlund, the chief emerging-market strategist at SEB AB in Stockholm.

The East European nation, whose top exports include sunflower seeds, corn and wheat, is “likely to see a cyclical increase in agricultural exports in the coming months and rising interest by China,” Hammarlund said.

©2019 Bloomberg L.P.