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US and China jostle in G20, ASEAN, APEC forums

  • US and China spar in their spheres of cooperation and competition. ASEAN and India seek ever narrower neutral space

  • US-China friction creates opportunity for others in Asia with low-cost manufacturing and external resilience, eg Vietnam

  • Any new signal of an off-ramp in Russia-Ukraine War draws attention to possible beneficiaries in East Europe, eg Hungary

US and China jostle in G20, ASEAN, APEC forums
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

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Tellimer Research
14 November 2022
Published byTellimer Research

Southeast Asia is hosting the G20 summit in Indonesia (15-16 November), the ASEAN summit in Cambodia (10-13 November), and the APEC forum in Thailand (14-19 November). As in any multilateral gathering, the US, China, and the Asian countries all have their own interests to project and protect.

The repercussions from the transition of US military focus from the Middle East and Afghanistan to Asia, the end of China's unfettered export-led growth under a globalised free trade system, due to increasing US barriers to trade and its own rising costs, and the narrowing space between these two global powers for all middle powers should be on view.

For investors, there should also be some reminders as to the opportunities in Asian emerging markets that may benefit from US-China competition and are valued cheaply relative to their historical average and some pointers as to whether the Russia-Ukraine War has an off-ramp that might revive the East European emerging markets.

Our top Asia regional equity market pick is Vietnam, which benefits from "China +1" manufacturing, the revival of tourism, is low risk in terms of currency and external account, is relatively resilient against high fuel and food prices, is cheap relative to its history (trailing PB at a 35% discount to the 5-year median), and has been largely abandoned by foreign investors outside the tiny dedicated pool of frontier specialists.

Our top regional pick, should there be any de-escalation in the Russia-Ukraine War, is Hungary, which is the most reliant on imports of Russia gas (17% of total energy supply) and the cheapest relative to history (trailing PB at a 35% discount to the 5-year median).

Competing geopolitical agendas

US President Joe Biden will demarcate those areas where the US seeks cooperation (climate), competition (trade and investment) and no compromise (access to advanced technology, Russia, Taiwan) with China, and pitch a mix of defence security cover (Asia is where the majority of overseas US military personnel are located) and inward investment to others, particularly the ASEAN countries.

General Secretary XI Jinping will communicate to the US both its desire to restore more cooperative relations and maintain its independent stance on global geopolitical issues such as Russia-Ukraine and Taiwan, as well as pitch the benefits of greater trade and investment integration (largely under the umbrella of RCEP but with some potential, post-Covid, revival in Belt and Road too) with all others, particularly the ASEAN countries, with no hint of softening its territorial claims in the South China Sea (the "nine-dash line").

All other countries, particularly India and ASEAN, will attempt to tip-toe the increasingly narrow neutral space between the US and China, in the knowledge that China is now their main trade and investment partner but that the US provides their most credible guarantee of defence against Chinese territorial incursion.

Implications for investors

Asia

For investors, these gatherings also serve as a reminder for at least two positive drivers for the investment case in ASEAN:

  1. "China +1 manufacturing" where the likes of Vietnam benefit from the efforts to diversify multinational manufacturing in search of greater supply security, lower cost and lower tariffs, albeit, for now, at least, Vietnam and all others remain deeply interwoven with Chinese manufacturing (with Chinese inputs a major part of their ultimately exported finished products), and

  2. Tourism and domestic consumption revival as Covid travel, quarantine, and social distancing restrictions subside.

Our top Asia regional equity market pick is Vietnam, which benefits from "China +1" manufacturing, the revival of tourism, is low risk in terms of currency and external account, is relatively resilient against high fuel and food prices, is cheap relative to its history (trailing PB at a 35% discount to the 5-year median), and has been largely abandoned by foreign investors outside the tiny dedicated pool of frontier specialists.

Eastern Europe

For investors, this week also may provide pointers as to the trajectory of a war half-way round the world, which has wrought so much damage to the investment case of not merely nearby emerging markets in Eastern Europe but also to any relatively poor country importing fuel and food.

  • US and China interaction occurs amid a potential window for de-escalating the Russia-Ukraine War, amid:

  • Ongoing external funding and armament of Ukraine,

  • Economic sanctions on Russia, particularly on its oil exports, take full effect,

  • Territorial setbacks for Russia,

  • Potential challenges for President Putin from domestic dissenters,

  • Diplomatic softening of China's support for Russia (eg concerns voiced over nuclear weapons threat),

  • Signal from the trip of Chancellor Scholz that Germany wants to reinvigorate trade ties with China, and

  • Onset of the winter weather freeze in Ukraine.

Our top regional pick, should there be any de-escalation in the Russia-Ukraine War, is Hungary, which is the most reliant on imports of Russia gas (17% of total energy supply) and the cheapest relative to history (trailing PB at a 35% discount to the 5-year median).

Related data and reading

China stocks' harsh loss as Xi wins: Emerging-Frontier Equity Monthly – October, Oct 2022

US, Europe, China: A Tripolar World hastened by the Russia-Ukraine War, Mar 2022

ASEAN abandoned in the foreign rush to China and India, Nov 2021

Russia's setbacks in Ukraine reopen all endgame scenarios, Sep 2022

Over 230 curated data points on macroeconomics, equity, debt and FX markets, ESG, manufacturing and consumer bases, ESG, and political risk on over 50 emerging and frontier markets is found in Tellimer's Country Investability Index.