KUALA LUMPUR -- The escalating trade war will give Southeast Asian economies a boost by prompting major companies operating in China to shift operations to the region, according to HSBC Private Banking.
Cheuk Wan Fan, the business's managing director and chief market strategist (Asia), said Vietnam, Thailand and Malaysia are expected to be the main beneficiaries from the high tariffs imposed on Chinese imports by the U.S. But she said the relocations will not happen overnight.
"Based on what we have observed in the last 12 months, the supply chain relocation is taking place gradually, as it takes time for companies to adjust investment plans and capital expenditure," Fan told reporters in Kuala Lumpur last week.
Fan said the latest purchasing managers indexes show that Southeast Asian countries are standing up well to the global economic uncertainty.
Malaysian Finance Minister Lim Guan Eng said last week that his country is capitalizing on its competitiveness in the global supply chain to become one of the top preferred safe havens in the region.
He said foreign direct investment soared in the first quarter of 2019, rising 73.4% from the same period last year to 29.3 billion Ringgit (about $7 billion).
The first quarter jump was driven by a 127% surge in manufacturing investment to 20.2 billion Malaysian ringgit, of which 11.5 billion ringgit came from the U.S., 4.4 billion ringgit from China and 2.2 billion ringgit from Singapore.
As for China, Fan said growth this year could be cut by 1.2 percentage point if no additional stimulus is introduced in the event that the U.S. imposes 25% tariffs on an additional $325 billion of Chinese exports.
The higher tariffs, she said, may trigger even stronger policy responses from the Chinese government. Possible steps include lower corporate taxes, a further reserve requirement rate reduction and targeted interest rate cuts.
China had earlier cutting value-added taxes and social security fees, bring total tax savings of about 2 trillion yuan ($289 bullion) -- about 2% of its economy.
The People's Bank of China has also raised the target ratio for new loans to the private sector to 50% in 2019, up from 10% three years ago.