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Aug. 3, 2019, 11:46 p.m. EDT

Invest in this country as the biggest beneficiary from the U.S.-China trade dispute

Companies are moving supply chains out of China and into Vietnam

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By Michael Brush, MarketWatch


Bloomberg News
Hanoi, Vietnam

Many analysts, myself included, thought there would be a quick resolution to the U.S.-China trade dispute because this was so clearly the right move for both countries.

Boy, were we wrong!

Despite the trade-war damage to both sides — in the form of slower economic growth and a pullback in all-important business investment in the U.S. — it now looks like the trade dispute will drag out.

One big reason: China likes to play the long game. Policy officials think they might see a more amenable president after the 2020 elections who could be easier to deal with than President Donald Trump.

Companies, too, are concluding this is going to be a drawn-out affair. So they’re moving supply chains out of China. This is bad for China. But there’s a good angle here for investors. The economies of other emerging market countries where companies are going are getting pumped. So their stock markets will probably outperform the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.05%  and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.52% .

The two emerging market countries seeing the most new investment due to the trade disputes are Vietnam and Bangladesh, says Oliver Bell, who manages the T. Rowe Price Africa & Middle East Fund /zigman2/quotes/206081171/realtime TRAMX +0.42% . Of those two, Bell favors Vietnam, so this should be your focus, too.

How Trump is helping Vietnam

It’s easy to see why Vietnam’s economy and stock market will benefit. While foreign direct investment (FDI) into China has fallen around 34% this year, investment into Vietnam is up sharply, says Bell.

FDI increased 69% in the first five months of the year in dollar terms to reach a four-year high of $16.7 billion, according to Vietnam’s Foreign Investment Agency. The number of new projects was up 39% to 1,400. Most of this is in manufacturing and processing, as opposed to the real estate or retail sectors. “The FDI for Vietnam is huge,” says Bell. “The change is enough to move the needle.”

The spike is mainly due to the U.S.-China trade war, say analysts at Dezan Shira & Associates, which helps business set up shop in Asian countries.

Here are some examples:

• Nike /zigman2/quotes/203439053/composite NKE +3.09% and Adidas /zigman2/quotes/203671926/delayed ADDYY -0.09% make a lot of their sneakers in Vietnam. Competitors Asics /zigman2/quotes/203940894/delayed ASCCY -5.37% and Brooks Sports, a division of Berkshire Hathaway /zigman2/quotes/200060694/composite BRK.B +0.54% , are joining them by boosting investments in manufacturing in Vietnam.

­• Samsung has made smartphones in Vietnam for years. Now, Apple /zigman2/quotes/202934861/composite AAPL +1.57% may join its competitor there. Apple is encouraging suppliers to move some production out of China. Two of its main contract manufacturers, Pegatron and Foxconn, are circling Vietnam. This means Apple may soon start making some phones there. Apple already makes wireless headphones in Vietnam, says Bell.

• Consumer-electronics makers Nintendo /zigman2/quotes/201616881/delayed NTDOY +0.21% , Sharp /zigman2/quotes/200401218/delayed SHCAY +0.16% and Kyocera /zigman2/quotes/203528076/delayed KYOCY +0.50% are moving production to Vietnam from China.

While moves like those — and no doubt more to come — make Vietnam look more interesting as a place to invest, the country already had its own attractions, says Bell.

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