Malaysia key beneficiary in US-China trade war

Report identifies potential gain from import substitution

PETALING JAYA: Malaysia has emerged as a clear winner in an in-depth analysis on potential beneficiaries of import substitution, as a result of the US-China trade war.

A report by Nomura Global Markets Research analysed the 7,705 products included on the tariff lists, and estimated potential gains from import substitution for 13 Asian countries.

It said Malaysia topped the list of beneficiaries, with the biggest benefit likely to come from electronic integrated circuits, liquefied natural gas and communication apparatus.

“We identify two channels of potential benefit from this trade war: import substitution (in the short run) and production relocation (in the medium term).

“In the short term, if the US and China charge higher tariffs on each other’s imports, then companies will have an incentive to replace these expensive imports with local production sources or substitutes from other countries,” the report said.

Apart from Malaysia, it said other countries that stood to benefit from import substitution were Japan, Pakistan, Thailand and the Philippines.

Bangladesh, India and South Korea, on the other hand, stand out as the least likely to gain on a relative basis.

“A US-Sino trade war is a lose-lose proposition for the world economy, and especially for Asia, which is home to some of the most open economies in the world.

“However, multinational companies (MNCs) are nimble, and at a more granular level, there are likely to be some companies, industries and possibly even small economies that benefit from the trade war,” it said.

The second part of the analysis, on production relocation, also listed Malaysia as a key beneficiary, second only to Vietnam.

The report noted that a prolonged US-Sino trade conflict, in the medium term, would encourage MNCs to start diverting some of their production to factories in other countries to escape tariffs, or even relocating whole plants if the trade war sustains.

“If companies were to divert production and foreign direct investment (FDI) from China, then we estimate that Vietnam is the clear standout, followed by Malaysia, Singapore and India.

“Interestingly, while Pakistan is one of the biggest beneficiaries from import substitution, it

benefits the least from the diversion of production and FDI,” it said.

Overall, the report found that many Asean countries were “best placed to benefit” from the US imposing tariffs on China.

Malaysia topped this list as well, followed by the Philippines, Thailand and Vietnam.

The countries that could benefit from China imposing tariffs on the US, on the other hand, were Pakistan, followed by Japan and Malaysia.

Nomura also listed a “preferred basket of Asian companies”, naming 24 companies across 22 product categories it sees as equity winners in the trade war.

The list was dominated by Malaysia with seven companies, and Japan with six companies.

The Malaysian “winners” listed were Inari Amertron Bhd, Globetronics Technology Bhd, Petronas Chemicals Group Bhd, Lotte Chemical Titan Holding Bhd, ViTrox Corp Bhd, Pentamaster Corp Bhd and Mi Equipment Holdings Bhd.

The report, however, noted that the companies listed were very narrowly concentrated in the petrochemicals space.