OCBC: Asean still dependent on demand from China

KUALA LUMPUR: Asean’s dependency on China’s demand is unlikely to deviate much in the long run, but in the short term, the region’s export fortunes may feel the trade-war pinch lesser compared with Taiwan or South Korea, said OCBC Bank.

Asean-5 (Malaysia, Indonesia, Singapore, Thailand and the Philippines) displayed lower concentration of trade risk compared with Taiwan and South Korea, added the bank.

“While Asean may have the benefit of regional diversification, the overall impact on the region arising from the United States-China trade spat is likely to result in a net negative on export fortunes in the short-term.”

OCBC added that Sino-US trade relations appeared increasingly strained and Chinese demand for goods in the region may erode on uncertainty.

“The likes of South Korea and Taiwan, the traditional weather vanes of global trade health are also likely to see increasing strains on export demand. The Sino-US trade war is ultimately a battle for technological superiority; as the tech race heats up, Asean needs to rethink its approach to labour and productivity,” it added.

Using each country’s top 10 trading partners, OCBC said the Herfindahl-Hirschman Index (HHI) showed that the concentration risk among Asean-5 ranges from 4.5 per cent to nine per cent, lower than Taiwan and South Korea at 12.4 per cent and 9.7 per cent, respectively.

“Despite the growing importance of China’s demand in Southeast Asia, the HHI exposure of Asean-5 to China remains relatively muted compared with Taiwan and South Korea, in turn reducing the direct impact of an expected decline in China’s demand from the ensuing trade war,” it added.