Asean firms bullish on outlook despite trade war: HSBC report

Southeast Asian corporates have the most bullish trade outlook in the world despite firms expecting protectionism to go up, according to a global report by HSBC.

The HSBC Navigator report indicated that Asean corporates are expecting more upsides for the region as firms divert their supply chains to Southeast Asia as a result of the US-China trade war, essentially turning global headwinds into potential headwinds.

The majority of Asean firms (86 per cent) are positive about their company's prospects in foreign trade - more than any other trade bloc and higher than the global average of 77 per cent.

Three quarters of Asean businesses believe that governments are becoming more protectionist in their key export markets, coming in much higher than the global average of 63 per cent.

According to the report, the US-China trade war may have an indirect impact on the Asean bloc, given the region's high level of exports to both countries.

On the other hand, it also found that tariffs open up opportunities for Asean markets in areas like electronics, textiles and automobiles.

For example, Asean countries such as Thailand and Malaysia already have existing production networks in electronics, such as hard disk drive (HDD) assembly. With Thailand exporting the same amount of finished storage units to the US as China does, it could potentially shift assembly there, especially since Chinese shipment of HDDs to the US are now subject to about 10 per cent of tariffs, said the report.

With increased production a possibility for the region's supply chains, technology advancement will be needed to manage any ramp up in capacity.

Some 37 per cent of Asean respondents are focused on increasing the use of digital and technology within their business, compared to 28 per cent globally. Some 34 per cent of Asean respondents also said that increasing use of technology is the top change planned to supply chains in the next three years, which is higher than the global average of 27 per cent.

Tony Cripps, CEO of HSBC Singapore, said: "Moving production to low-cost countries in ASEAN is nothing new and a shift in production to the region would be a continuation of what's already happening. The trade tensions may prompt an acceleration of this trend in the short-term which will positively affect countries with existing production capacity like the Philippines and Vietnam."

"But shifting supply chains on a large scale is not something that can happen overnight. If trade tensions linger, Thailand, Malaysia, and Vietnam are likely to see selective gains from export diversion."

The HSBC Navigator surveyed 8,500 businesses in 34 markets between August and September 2018. In Southeast Asia, more than 1,000 views were sought among five markets, namely Singapore, Malaysia, Thailand, Indonesia and Vietnam.