The surprising beneficiaries of a trade feud

As firms actively shift supply chains out of China, banks and logistics businesses benefit

There actually can be winners from a trade feud, if not the ones President Trump believes.

As tensions between the U.S. and China have intensified, global companies are actively diversifying their supply chains away from China. This is good news for countries receiving that investment and for the banks and supply-chain consultants that are helping companies make the transition.

“The truth is that even before the trade wars there was an exodus of capital out of China and into lower labor-cost countries,” said Jorge Mariscal, chief investment officer for emerging markets at UBS Wealth Management.

The trade dispute has accelerated the trend. Popular destinations for investment include big Southeast Asian markets like Vietnam, Indonesia and the Philippines.

Companies aren’t always eager to trumpet these moves, lest they offend authorities in China where they still retain huge business interests. But some are saying it publicly. In an October conference call, Steve Madden’s chief executive officer, Edward Rosenfeld, said the company is “aggressively shifting production out of China to other countries, primarily Cambodia.” Next year the company aims to produce 40% to 50% of goods affected by tariffs outside China, compared with just 16% in 2018.

Last week top executives at Bank of America and Citigroup both said clients are actively moving supply chains. Bank of America Chief Executive Brian Moynihancited it as a negative for client profits, while Citigroup Chief Financial Officer John Gerspach painted the trend as positive for the bank’s advisory and lending operations.

“We’re able to work with the clients on areas of trade and vendor finance, supply-chain financing,” he said.

Citigroup’s global span gives it an edge in this kind of business over other U.S. banks. Global banks with big emerging-market footprints like Standard Chartered and HSBC might also stand to benefit.

Besides bankers, logistics providers such as Hong Kongbased Li & Fung and Kerry Logistics Network may also capitalize on the disruption.

Li & Fung, which helps retailers and global brands source clothing and other items, has seen its shares fall by around two thirds so far this year on fears of trade tensions and inventory destocking by retailers. But in an August conference call, Chief Executive Spencer Fung noted the company’s presence in more than 50 countries and said it would see just a 2% effect on revenue even if U.S. tariffs on Chinese imports went to 25%. Mr. Fung mentioned a client that Li & Fung helped to reduce its reliance on Chinese production to 10% from over 50% from 2013 to 2018.

The market has swooned whenever trade tensions have flared and bounced back whenever a resolution appeared in sight. To hedge against the risk that talks fail and tariffs rise, investors should be eyeing potential beneficiaries.