Even before President Donald Trump’s tariffs, China had become an expensive place to manufacture due to an ageing population and higher labour costs.
However, as Aberdeen Investments head of Asia-Pacific equities Pruksa Iamthongthong explained, the situation is now crucially different: companies must view supply chain diversification not merely as a contingency plan, but as an absolute necessity.
“What this tariff situation has created is that it accelerated the situation, and as a result, with clarity, things can get back to business,” she told InvestorDaily.
As Iamthongthong explained, other Asian nations are swiftly implementing policy changes to attract onshore manufacturing investment away from China. This, coupled with a weaker US dollar and anticipated US interest rate cuts, makes emerging markets a compelling investment opportunity going forward.
In her view, a key player is India, which is currently undergoing a major structural shift. Long a stronghold services provider owing to its large skilled workforce, India’s development as a manufacturing hub has been hindered by inadequate infrastructure.
However, over the past three years, “Made in India” has evolved into a key manufacturing policy.
The government is on a capital expenditure spree to put in the necessary roads, railways and highways to make onshore manufacturing more attractive, and is offering subsidies for companies to come into India to manufacture.
“We are already seeing pretty tangible stuff, like iPhone manufacturing. Part of it is shifting to India, and in other electronics areas as well. So I think ultimately, India will be a big part of the export globalisation 3.0 map we get to see,” Iamthongthong said.
She added that India also benefits from a vast domestic market and a large young population. With an increasing number of graduates now entering the job market, there is a need for more manufacturing jobs to absorb them.
Other ASEAN countries are also actively positioning themselves as new manufacturing hubs, with Thailand and Vietnam the most developed in terms of export competitiveness.
Despite political turmoil over the last few years, Iamthongthong singled out Thailand as a fairly stable market for investors. She noted that the country has long served as a manufacturing centre for hard disk drives and automotive components for Japanese car manufacturers.
For some time, its Eastern Economic Corridor has actively encouraged foreign investment in manufacturing through various incentives, including tax benefits and regulatory allowances.
Looking ahead, Iamthongthong noted Thailand’s efforts to attract further electric vehicle (EV) investments and its invitations for data centres to establish operations within the country.
“I think the government is planning to try to attract more of these businesses, EV being one of them, and data centres would be the other, and really provide, you know, a stable policy with regard to the investment schemes,” Iamthongthong said.
She added that Vietnam has been a beneficiary of some of the earlier diversification out of China, attracting new business in sectors such as textiles manufacturing.
“But increasingly, over the last few years, the electronics cluster has been growing really strong in Vietnam as well. So you get the likes of Samsung manufacturing their phones there, you get the Japanese setting up their plants there, so we do think that Vietnam is very well positioned,” she said.
According to Iamthongthong, Vietnam’s current tariff rate with the US, which stands at 20 per cent on several exports and 40 per cent on trans-shipments from third countries, should further ensure Vietnam’s competitiveness.
Indonesia, too, is a compelling market, according to the equities expert, who noted its shift away from a resource-based economy reliant on coal, nickel and palm oil, to a government actively involved in attracting foreign investment and providing subsidies to establish on-shore processing plants, both aimed to stimulate job creation and foster a more developed economy.
“I think what the government wants to do, and this ties back to the increase in young population … is that they want to create more industries so that you are able to create more jobs and capture more of the value to be generated within Indonesia,” Iamthongthong said.
At the same time, although there have been concerns surrounding the Chinese economy, Iamthongthong said the long-term outlook for the region as a whole is positive.
“We do feel that we are at an inflection point ... with a supportive backdrop of increased liquidity, lower rates, government support in Asia, you should start to see Asian growth really coming back,” she said, adding that the region’s earnings growth remains at some 11 to 12 per cent.
“China has gone through its own rather rough patch as well in terms of growth … In India, growth has also come down this year. But you are talking about growth coming down to 6 per cent type of growth, which is still a very high level,” Iamthongthong said.
While a global recession had been an initial fear following President Trump’s so-called “Liberation Day” tariff announcements, Iamthongthong added that tariff rollbacks suggest the region will now avoid the worst.
“If you take a bigger step back, what’s most important is that the structural growth of Asia remains the same.”
