Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
Speaker: Thanks for listening, and now onto today's show.
Speaker: This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify.
Speaker: Search for HSBC Global Viewpoint or join us via the HSBC Global Banking and Markets page on LinkedIn.
Speaker: However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Speaker: Hello from Hong Kong and welcome.
Speaker: I'm Fred Newman, chief Asia economist at HSBC, and you're listening to Under the Banyan Tree, where we put Asian markets and economics in context.
Speaker: On the podcast today, two Asian economies bucking the widespread trends of weakening trade, worrying inflation levels, and the looming prospect of recession.
Speaker: For Malaysia and Vietnam, it's a story of resilient exports, rising foreign investment and climbing up the global technology value chain.
Speaker: My expert guest this week is ASEAN economist Yon Liu, who joins me here in the Hong Kong studio.
Speaker: Let's take the conversation under the banyan tree.
Speaker: A few key stats to set the scene here.
Speaker: The ASEAN region's share of global foreign direct investment has jumped actually to 10%.
Speaker: To put that into context, that's almost on par with mainland China, and ASEAN only has half the population of mainland China.
Speaker: Malaysia is leading the charge for FDI in the region with foreign investment now accounting for almost 10% of GDP.
Speaker: Meanwhile, more than half of all Samsung phones made last year were produced in Vietnam, where a young population is rapidly rising.
Speaker: Time to bring in Yon to help us understand what's driving these encouraging economic trends.
Speaker: Yon, great to have you with us.
Speaker: Thank you for having me, Fred.
Speaker: So Yun, Malaysia and Vietnam are held up as examples of economies that are especially resilient at the moment, given all the turmoil that we have in the world economy.
Speaker: Why is this?
Speaker: Why are these economies so resilient?
Speaker: Yeah, these two economies are two outperformers in Asia.
Speaker: So I think their recover stories are really sort of broad-based.
Speaker: So on the external front, you know, their experts remain quite resilient, despite we are seeing some, you know, signs of slowdown in the global trade cycle here and there.
Speaker: And then on the other side, you know, when we talk about domestic recovery, these two economies are one of the earliest economies in ASEAN that reopened.
Speaker: So we have seen, you know, a sudden boom of domestic demand coming up.
Speaker: And then part of that story is also because of, you know, relatively benign inflation that keeps the private consumption going forward.
Speaker: Now, you highlight exports as being resilient, but we're likely heading into global trade recession.
Speaker: Why are you so confident that exports can actually remain resilient from these two markets, given what's happening elsewhere in Asia in terms of the downturn in trade?
Speaker: Yeah, of course, you know, when we talk about global trade slowdown, you know, these economies cannot be insulated from that broad trend.
Speaker: But what we see in these two economies is that, you know, they have gained substantial market shares in the past decade, thanks to this consistent FDI inflows, especially in the electronic space.
Speaker: Malaysia and Vietnam are two great examples of, you know, climbing up the value chain,
Speaker: deeply embedded in the global tax supply chain.
Speaker: So it's not going to insulate them from the broad trend, but at least that gives us a little bit more confidence or a little bit more cushion when it comes to the trade moderation.
Speaker: So you highlight electronics, clearly they're gaining market share, and that's perhaps giving these economies a bit more resilience in the global trade recession.
Speaker: But commodities traditionally have played a big role as well in Southeast Asia.
Speaker: What's the commodity angle here for the exports?
Speaker: Yeah, sure.
Speaker: So commodities probably applies to Malaysia much more than Vietnam, because Malaysia is one of the few net oil and gas exporters in Asia.
Speaker: So even though, you know, in recent months, we saw a little bit of pull down in oil and gas prices, they are still elevated, much more elevated than where they were at the end of 2021.
Speaker: So it really has given Malaysia exports a boost.
Speaker: Whereas in Vietnam, Vietnam has transformed itself from a net oil exporter to a net oil importer.
Speaker: So it's less so for Vietnam and really has sort of pushed Vietnam's inflation.
Speaker: But then in terms of other different kinds of commodities, Vietnam is the world's third largest rice exporters.
Speaker: But then in terms of the price effect, it's not as big as, say, the energy commodities that Malaysia has been enjoying.
Speaker: You highlight robust domestic demand as also driving this resilience in Southeast Asia.
Speaker: And part of this story must be that the fact that inflation is still more manageable there.
Speaker: Why is inflation lower in Vietnam and Malaysia compared to elsewhere in the world?
Speaker: Yeah, part of the story is because of subsidies, say in the case of Malaysia or some administrative price controls in the case of Vietnam.
Speaker: But then even in these two economies, what we are seeing is the price momentum is picking up quite quickly, you know, as core inflation is picking up, domestic demand is recovering, labor market is recovering.
Speaker: So even in these two economies where inflation is relatively lower than other economies, their inflation momentum is picking up.
Speaker: So we should not overlook this factor.
Speaker: So a bit more inflation coming through there, but perhaps not quite as alarming as we see elsewhere in the world.
Speaker: Does that mean that the central banks don't have as big a task ahead of themselves as, say, the Federal Reserve did in the U.S.?
Speaker: Well, I mean, I think for these two economies, you know, even though we are talking about, you know, recession risks here and there, for these two economies, their growth outlook still looks pretty robust.
Speaker: So the primary concern for the central banks in these two economies still is inflation as, you know, inflation momentum is picking up.
Speaker: So we expect them to continue or keep pressing their brakes in their current tightening cycle well into next year.
Speaker: But of course, you know, the pace, well, it really depends on their inflation trajectory.
Speaker: What we expect, it's going to be a gradual or modest pace of monetary time.
Speaker: And it's not going to be as aggressive as what we see with the Fed.
Speaker: All right.
Speaker: That seems like a good place to take a break.
Speaker: More on these two economic outperformers when we return.
Speaker: Welcome back.
Speaker: So, Jan, turning to Malaysia, we've got an election coming up in a little over a week.
Speaker: How does it play into the economic outlook for next year?
Speaker: Yeah, sure.
Speaker: Malaysia is going to hold its 15th general election on November 19th, so it's approaching very fast.
Speaker: Well, in terms of economic implications, there's not really that much of major change that we expect.
Speaker: But I guess one thing to highlight is the implications on its fiscal policy.
Speaker: because Budget 2023 was tabled before the election was called.
Speaker: So what it means is that it will have to be retabled after the election is over.
Speaker: So this will have some implications on the budget implementation and also decisions around subsidies, because the previous tabled Budget 2023 was quite an expansionary one, and it still...
Speaker: announced to provide continual support to subsidies.
Speaker: So this will have a little bit of implications.
Speaker: But I think in terms of broad implications on growth and inflation is going to be very marginal.
Speaker: And then turning to Vietnam, it's expected to be among the fastest growing economies in the region again next year.
Speaker: How optimistic are you really for the success in years to come for Vietnam?
Speaker: Is that the story that continues or do you see sort of clouds on the horizon here for Vietnam?
Speaker: Yeah, I think for Vietnam, we are quite bullish on Vietnam's growth potential because I think it's a good, you know, structural transformation story.
Speaker: Because, you know, when we think about Vietnam, a lot of people thought about the lower wage advantage.
Speaker: But there is actually more than that.
Speaker: You know, when we see this consistent FDI relocations to Vietnam, it's really a whole combination of factors.
Speaker: Of course, you know, cost effectiveness is one.
Speaker: But then there is also pre-existing industry clusters, you know, preferential tax incentives,
Speaker: friendly FDI policies and various free trade agreements that I believe that it will continue to attract investors to the country.
Speaker: And are there any reasons to worry about something that could derail the success story for Vietnam?
Speaker: Anything that you pay particularly close attention to?
Speaker: Not really.
Speaker: I think it's sort of the issues are more reflective of Vietnam's own success story.
Speaker: You know, when we talk about its great potential, there are various areas that Vietnam has great potential to improve.
Speaker: So one is to improve its infrastructure connectivity.
Speaker: And then the other is to upskill its workforce.
Speaker: But I mean, this is, you know, all the sort of the common issues that when countries move up the value chain, these are the common issues that they are facing.
Speaker: So not really.
Speaker: So these sounds more like factors that constrain its growth rather than would derail it because it's a good problem to have if you're running out of infrastructure.
Speaker: You're bumping up against your growth constraints, but certainly that is not something that derails the underlying success.
Speaker: And on Malaysia, what's the medium-term outlook here?
Speaker: It's an economy talked about, the electronic sector being very successful, domestic demand is also supported by lower inflation.
Speaker: But how should we think about Malaysia really for the next several years?
Speaker: Yes, along with Vietnam, Malaysia is another big beneficiary in terms of attracting a lot of FDI inflows.
Speaker: So what this means is that the economy is really sort of shifting more from a resource-based economy to manufacturing, especially in the tech space, dominate.
Speaker: So this in turn will boost income and employment opportunities, which means that we're going to see probably higher domestic consumption in what still is a relatively young population.
Speaker: Well, Jun, thank you very much for joining us here on The Banyan Tree and highlighting these two economies in a world where we have recession risk, we have declining trade, we get an inflation scare.
Speaker: It's just great to hear about two economies that really embody that resilience that we have in emerging markets and these difficult times in the global economy.
Speaker: So thanks for joining us, Jun.
Speaker: Thank you for having me.
Speaker: And that's a wrap for this week's podcast.
Speaker: Our thanks as ever to you for joining us.
Speaker: Remember, you can listen to all our HSBC Global Research podcasts via the HSBC Global Viewpoint platform on Apple Podcasts, LinkedIn, and Spotify.
Speaker: We'll be back again next week, putting Asian markets and economics in context.
Speaker: Take care.
Speaker: Until then.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
