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Trade war

October PMI shows Asia's winners and losers of US-China trade war

Taiwan continues to plunge while Vietnam shows no sign of a slowdown

One concern for Asia last month was slowing semiconductor demand, with key producers citing a softer supply-demand balance.   © Reuters

SINGAPORE -- The U.S.-China trade war has started to bite Asian manufacturers, with some markets contracting sharply in the latest Nikkei Purchasing Managers' Index. But the data also showed some markets gaining despite the ongoing dispute between the world's two biggest economies.

The monthly Nikkei PMI survey asks companies in major Asian countries and regions except China about changes in output, orders and other business conditions compared with a month earlier. A PMI reading below 50 indicates contraction, while one above 50 points to expansion. Of the 15 sets of PMIs, six dropped in October from September, while nine rose.

Taiwan suffered a notable fall in October, as its manufacturing PMI dropped to 48.7 from September's 50.8 -- the sector's first contraction since May 2016. Both output and new orders declined in October, according to the survey, as "a number of companies linked the decline to reduced demand across key markets like China, Europe, Japan and the U.S."

Moreover, the Future Output Index slumped to 48.0 in October, the lowest since January 2016, meaning more manufacturers expect their output to decrease in the next 12 months.

"A number of companies anticipating the ongoing China-U. S. trade dispute to weigh on the sector's performance going forward," said Annabel Fiddes, an economist at IHS Markit, which compiles the survey.

Besides trade tensions, another concern in Asia last month was slowing semiconductor demand, with key producers citing a softer supply-demand balance.

"Looking ahead to the fourth quarter, Samsung expects overall earnings across the company to decline as it enters a period of weak seasonality for the semiconductor market," Samsung Electronics said in late October in its July-September results statement. Semiconductors alone count for about 70% of operating profit.

Taiwan Semiconductor Manufacturing Corp., the world's largest foundry, told an earnings conference in mid-October that its business would continue to grow in coming months, but also noted that "This growth will be partially offset by continued weakness in cryptocurrency mining demand and inventory management by our customers."

The October PMI for seven countries in the Association of Southeast Asian Nations also marked the first contraction since December last year, at 49.8. The figure dropped from September's 50.5 and was the lowest since July 2017.

Among the seven ASEAN countries surveyed, the worst hit was Singapore, another Asian semiconductor hub. Manufacturing PMI in the city-state was 43.3 in October, down from September's 48.0, despite an overall PMI of 52.6. The trend had already surfaced in September's government manufacturing output data, which showed a 0.2% decline in the month from a year ago, with the semiconductor sector falling 3.9%.

Also contracting in October were Thailand, from 50.0 to 48.9, and Malaysia, from 51.5 to 49.2.

"October PMIs are an early signal of the impending slowdown," said Priyanka Kishore, Head of India and Southeast Asia Economics at Oxford Economics. "We expect a more significant loss in momentum in 2019 as the negative impact of the escalating trade tensions between the U.S. and China begin to feed through, alongside continued tightening by the U.S. Federal Reserve."

Yet, some Southeast Asian countries marked noticeable gains.

In Vietnam, for example, October PMI rose to 53.9 from 51.5, with the New Export Orders Index hitting a three-month high. A number of companies pointed to a rise in new order intakes from existing client bases, according to the survey.

This is in line with a recent survey by the Guangzhou-based American Chamber of Commerce in South China, where both American and Chinese companies participating in the survey said that, as a result of the trade war, they have been losing market share, especially to companies in Vietnam.

PMI also rose in the Philippines, marking 54.0 in October over the previous month's 52.0.

The October data "clearly delineates the potential winners-losers from the U.S.-China trade war," said Selena Ling, Head of Treasury Research & Strategy at Singapore's Oversea-Chinese Banking Corp.

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