ASEAN Countries Increasingly Drawn To A Growing China, As Reports Of Near War Grow

There are macro trends occurring in China to which investors should be aware, a Credit Suisse report observes. Governmental and societal change does not always occur quickly in a fashion that can be easily recognized in what has become the 24-hour news cycle. Looking at the world from the longer term perspective, as Credit Suisse has in its January report titled “Asia in 2017: Trump, trade and rates,” illustrates a shifting investing as well as geopolitical landscape.

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Trend of Asia moving towards China is wide ranging

US / China relations is likely to be challenged under the Trump administration, but the trend towards US Asian allies being delivered into Chinese hands. While that is accurate, the analysis misses the more important point. The longer term trend in Asia is moving towards China regardless of Trump. While the Trump administration might throw gasoline on this already existing fire, it is a longer-term trend gaining momentum.

When this trend is combined with two other macro factors, regional reflation with nominal GDP recovery and risks from the Trump administration, an overlapping nexus of opportunity exists.

If all plays out according to script, economies in China are anticipated to prosper to the most significant degree, while the Philippines, Indonesia and Malaysia will benefit economically based on Credit Suisse GDP growth forecasts.

Those most harmed by the macro trends will be US ally India followed by Vietnam while free-market focused Singapore is expected to suffer GDP loss to a lesser degree.

Three macro trends that are driving Chinese geopolitical and investment strategy

One of the three key macro themes to focus on in the Credit Suisse report is Asian nations moving closer to China, which is not something that occurred overnight.

A key trend benchmark might have occurred September 26, 2016. This is when the nation’s admission into the elite Special Drawing Rights (SDR) currency basket managed by the International Monetary Fund, first considered years ago amid discussions of an emerging world power structure, became a reality.

The shining Chinese star has been greatly assisted by the Association of Southeast Asian Nations (ASEAN), whose goal for the region is “one vision, one identity, one community.”

Chinese investment in ASEAN nations has rocketed from near $4 billion (US) to close to $16 billion, with Indonesia receiving the most significant level of investment. In terms of sectors, the Chinese like hard asset investments such as energy, real estate and metals, while infrastructure investments in the region have also been growing.

Given the trend, Santitarn Sathirathai, Credit Suisse Head Emerging Markets Asia Economics and Economist Michael Wan see inflation rising in the region what a “turn in commodity prices” that is anticipated to benefit rural households, a stark contrast to US GDP distribution which has not favored rural economies.

Like their US counterparts, central banks in Asia are expected to reduce and then “end” the monetary policy gymnastics. Countries such as China, India and Thailand are expected to use fiscal policy measures to boost the economy. In most regions, this government spending will not raise inflation to significant levels, as Credit Suisse predicts growth will not get too hot so as to force central banks to hike interest rates. The only possible exception could be the Philippines, currently led by Rodrigo Duterte, perhaps best known for his heavy handed approach with local drug laws that doesn’t follow the rule of law and public spats with the US Presidency.

Driving the economy are likely to be commodity exporters and producers, with Malaysia, India and Thailand seeing the most growth from non-oil and gas related exports and higher agricultural prices. Thailand, however, is expected to suffer a lower trade balance related to oil and gas transactions.

On the military WWIII front there was a near war with America a few months ago, CCTV reported recently that China nearly fired anti-ship missiles at a US aircraft carrier – although others dispute that version. Regardless, the story just shows the extremely tense situation between China and America.