Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Under the Banyan Tree – Why are Asian exports at such low levels?
14 Plays1 year ago
With news that Chinese exports fell at their fastest pace for three years in June, Herald van der Linde and Fred Neumann discuss the state of Asian exports, which have long been a cornerstone of the regional economy. Disclaimer: https://www.research.hsbc.com/R/51/NRpklhw Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research.
Hosted on Acast. See acast.com/privacy for more information.
Recommended
Transcript
Introduction to HSBC Global Viewpoint
00:00:00
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.
00:00:11
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:14
Speaker
Thanks for listening.
00:00:15
Speaker
And now onto today's show.
00:00:16
Speaker
This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify.
00:00:22
Speaker
Search for HSBC Global Viewpoint or join us via the HSBC Global Banking and Markets page on LinkedIn.
00:00:29
Speaker
However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Focus on Asian Markets and Economics
00:00:45
Speaker
Welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
00:00:50
Speaker
I'm Harold van der Linde, head of Asian equity strategy at HSPC.
00:00:54
Speaker
And I'm Fred Newman, chief Asia economist.
00:00:57
Speaker
Today's podcast comes off the back of news that mainland Chinese exports fell last month at their fastest pace in three years.
00:01:05
Speaker
And it's not just Asia's biggest economy that's seeing shipping numbers drop off a cliff.
00:01:09
Speaker
That's right, exports are falling across the board.
00:01:12
Speaker
This is a story that touches various parts of the region's economy, not to mention equity markets.
00:01:17
Speaker
Let's kick off the conversation right here under the Banyan Tree.
00:01:36
Speaker
Let's start with some customary facts and figures to get us underway.
00:01:39
Speaker
Globally, export volumes plummeted in the early days of COVID, then massively spiked in 2021 and most of 2022.
00:01:46
Speaker
But since then, the numbers have dropped off dramatically.
00:01:48
Speaker
We'll get to why that is in just a moment.
00:01:50
Speaker
That's right.
00:01:51
Speaker
Asia has traditionally been an export powerhouse, but even here, shipments to key destinations like the US and Europe are falling at double-digit rates.
00:02:00
Speaker
Chinese exports were down more than 12% year-on-year in June.
00:02:04
Speaker
That follows a 7.5% drop in May.
00:02:07
Speaker
So Fred, let's start with the macro overview.
00:02:11
Speaker
What's happening with exports in Asia?
00:02:13
Speaker
Well, the trade cycle is clearly slowing.
00:02:15
Speaker
We have shipments down year over year, volumes are declining as well.
00:02:19
Speaker
So it's not just shipment prices, but volumes are down as well.
00:02:23
Speaker
And that's, of course, the big hangover.
00:02:25
Speaker
You could term that because during the pandemic, there was a surge in goods demand, particularly in the US and Europe, but really globally.
00:02:33
Speaker
And that meant Asian producers had to churn out goods to satisfy that demand, got all shipped to big consumer markets in the world.
00:02:41
Speaker
And now we see the hangover of that.
00:02:43
Speaker
So not only is the global economy slowing down, but consumers are shifting from goods demand to services demand.
Impact of Global Demand on Asian Exports
00:02:50
Speaker
So it's a double whammy, if you will, for goods demand.
00:02:52
Speaker
So instead of buying a new computer, they're going to a restaurant, sir?
00:02:55
Speaker
They go in a restaurant and they just bought a computer two years ago.
00:02:59
Speaker
So really you see that enormous decline come through.
00:03:03
Speaker
Shipping rates, for example, back down to where they were pre-pandemic.
00:03:06
Speaker
And they might even fall further, given that there's a lot of capacity coming on stream as well in the shipping industry.
00:03:13
Speaker
But broadly speaking, that's, of course, a headwind for Asian growth because many of the economies across the region really need that export fuel to run their economies.
00:03:23
Speaker
Yeah.
00:03:23
Speaker
So that's weaker demand from the US and Europe, but there must be some challenges here in Asia as well, right?
00:03:29
Speaker
I mean, China is slowing.
00:03:30
Speaker
Does that impact the export cycle as well?
00:03:33
Speaker
Yeah, so that's where the story gets even more complicated and interesting.
00:03:37
Speaker
And that is because China's had a very disappointing reopening on the economic side.
00:03:43
Speaker
We actually see Chinese manufacturers competing with exporters elsewhere in Asia.
00:03:50
Speaker
So think about this.
00:03:51
Speaker
China, second biggest economy in the world.
00:03:53
Speaker
Rather than importing goods, the manufacturers in China are looking to sell more goods.
00:03:58
Speaker
They can't sell them domestically.
00:04:00
Speaker
They're selling them overseas.
00:04:01
Speaker
The Chinese currency is down.
00:04:03
Speaker
And suddenly they're competing against Vietnamese producers, against Korean producers in the global market, where there's already lower demand for export.
00:04:11
Speaker
So the Chinese slowdown is, in that sense, a further challenge for Asian exporters.
00:04:16
Speaker
I guess a nice example of that is the electric vehicle industry we've been talking about over the last couple of weeks.
00:04:22
Speaker
They are big in China.
00:04:24
Speaker
And now, I mean, I've seen some of these EV companies from China selling their product in India, in the Netherlands, in Germany.
00:04:32
Speaker
That's an example of that, right?
00:04:34
Speaker
They can't find a demand domestically, so they go and...
00:04:38
Speaker
It is an example, although I would say it's more of a structural change in trade.
00:04:43
Speaker
And what really the currently we have a cyclical problem that is China's economy is weak.
00:04:47
Speaker
And so China exports more steel than is using it domestically.
00:04:51
Speaker
The electric vehicle stuff is interesting because there you see structural changes happening where suddenly Chinese producers are very competitive.
00:05:01
Speaker
China never was a big car exporter.
00:05:03
Speaker
And now they're competing against Japanese and Korean and German oil.
00:05:07
Speaker
And that's going to be a long term issue.
00:05:09
Speaker
Even if China's economy recovers, their EV export prowess is not suddenly going to disappear.
00:05:15
Speaker
So if we extend that a little bit, is then the export story changing in the region
Emerging Export Powerhouses
00:05:21
Speaker
as well?
00:05:21
Speaker
Are there new sort of exporting powerhouses, if you want to put it like that, emerging in the region?
00:05:28
Speaker
Yeah, that's right.
00:05:29
Speaker
But again, we have to distinguish a little bit between the cyclical headwinds.
00:05:32
Speaker
Everybody's trade is down, even China's trade is down.
00:05:35
Speaker
But of course, the pain from a weaker Chinese demand is kind of spreading across the region.
00:05:40
Speaker
That's cyclical.
00:05:41
Speaker
And then there's structural stories.
00:05:43
Speaker
One, we already mentioned electric vehicles.
00:05:45
Speaker
Another great structural story would be, for example, the tech exports from India, both services and
00:05:52
Speaker
And, you know, high-tech goods that are coming out of India, for example, 7% of global iPhones are now produced in India, for example.
00:06:00
Speaker
That's a new trend, and that's structural as well.
00:06:04
Speaker
And then, of course, Indonesia, electric vehicle battery components, the nickel, refining nickel, for example.
00:06:12
Speaker
You've been keeping a close eye on that one, Harold.
00:06:14
Speaker
No, absolutely.
00:06:15
Speaker
I mean, it's very important for the Indonesian equity market, of course, and it comes with all sorts of benefits.
00:06:22
Speaker
It means FDI comes into that country, stronger currency, the interest rates don't have to go up.
00:06:27
Speaker
All these things are really good for the equity markets.
00:06:29
Speaker
So it changes the dynamics of the stock markets in the region to a very large extent as well.
00:06:35
Speaker
So we talked about the challenging outlook for exports across the region.
00:06:39
Speaker
New orders are still down, new export orders.
00:06:41
Speaker
So we just had new electronics indicators for the world.
00:06:45
Speaker
Actually, we see both consumer electronics, new orders, and industrial electronics, new orders, being down.
00:06:50
Speaker
From an equity strategy perspective, how important is the export cycle for regional equity markets in the first place?
00:07:00
Speaker
Well, it is important.
00:07:01
Speaker
But again, I think we spoke about in the past about the difference between the micro and the macro.
00:07:06
Speaker
And that comes a little bit back here as well.
00:07:08
Speaker
So, yes, the export cycle is important for two reasons.
00:07:11
Speaker
First of all, it tells us something what happens globally with interest rates.
00:07:14
Speaker
Strong global demand might mean interest rates go up and that's bad for equities in general.
00:07:20
Speaker
And of course, there are markets, in particular Korea and Taiwan, that are really geared.
00:07:25
Speaker
Singapore, to a certain extent, but really Korea and Taiwan, that are really geared to exports.
00:07:29
Speaker
I mean, 60, 70, 80% of these markets are really companies that export their products.
00:07:34
Speaker
So the domestic economy, what happens there is not so relevant, in particular in Taiwan.
00:07:38
Speaker
But then again, there are these idiosyncrasies, these peculiar cases that we have to look at from a micro point of view.
00:07:47
Speaker
For example, in Korea, the largest exporters are memory chip makers.
00:07:52
Speaker
And the dynamics there are different.
00:07:53
Speaker
People have been holding back on investments.
00:07:56
Speaker
Therefore, there's not enough supply.
00:07:57
Speaker
Suddenly we have AI surging back.
00:08:00
Speaker
We need service, we need therefore memory chips and therefore demand for that is stronger than supply.
00:08:06
Speaker
You see that prices are starting to move higher or at least that is what has been anticipated in markets if you look at some of the contract prices in the market.
Regional Equity Market Dynamics
00:08:13
Speaker
So the DRAM sector has performed very strong on the back of that.
00:08:16
Speaker
In Taiwan it's very much related to foundry so that's making specialized chips, not so much commodity chips if you want to put it like that.
00:08:25
Speaker
There the opposite is taking place.
00:08:27
Speaker
There's a bit too much inventory, but maybe that will wash through the system and next year we recover.
00:08:31
Speaker
So you have these different stories that we need to understand how that then translates into equities as well.
00:08:37
Speaker
And this is why these equity markets, Korea and Taiwan, have performed fairly strong here today.
00:08:42
Speaker
But the risk is, of course, that ultimately, yeah, what you're talking about, weak global demand, is going to create an overnight.
00:08:49
Speaker
So you mentioned Korea and Taiwan, which are very export-oriented economies, where, of course, tech plays a big role also in the index, the equity index.
00:08:59
Speaker
But how important would exports be for mainland Chinese stocks, for example, or for Southeast Asian equity markets or the Indian equity market?
00:09:08
Speaker
Aren't domestic companies usually more represented on the indices?
00:09:13
Speaker
So the export sector used to be really big in that market, we're talking about 20 years ago.
00:09:18
Speaker
At the moment, that is not.
00:09:20
Speaker
The largest sectors in mainland Chinese equities are basically tech names, banks, insurance, consumer companies, retailers, all these sort of things.
00:09:30
Speaker
And they are really geared to what happens domestically.
00:09:33
Speaker
It's consumption and domestic investments that drive that.
00:09:36
Speaker
Not so much the export sector.
00:09:38
Speaker
Mainland Chinese equities, India and Indonesia, are not...
00:09:43
Speaker
really impacted as much.
00:09:44
Speaker
The impact comes sometimes secondary.
00:09:46
Speaker
For example, if the currency is weak or interest rates need to go up because of a swing in exports, then that might impact the equity story.
00:09:54
Speaker
But for most of the companies listed there, they're really domestic stories.
00:09:57
Speaker
So we need to understand the domestic side.
Asia's Role in Global Export Markets
00:10:00
Speaker
Well, one thing I think we should keep in mind about the broader story here is that the exports are under pressure at the moment for cyclical reasons and there are structural shifts as we discussed.
00:10:12
Speaker
Mainland Chinese EV exports, for example.
00:10:15
Speaker
But at the same time, the data clearly shows that Asia continues to gain global export market share.
00:10:23
Speaker
that more and more production is moving into this region, that even mainland China's export share in global exports has continued to climb in the last few years.
00:10:34
Speaker
So it's not as if the region is losing its mojo as a production hub of the world.
00:10:40
Speaker
It's just that these subtle shifts are coming through.
00:10:43
Speaker
And some of the supply chain movements, of course, moving from mainland China to Southeast Asia.
00:10:48
Speaker
But that doesn't mean that mainland China becomes less important of a trade hub, really, for the global economy.
00:10:54
Speaker
So the simplified view that we sometimes get presented is that the world is decoupling, that actually the West and the East are going on their own ways and there's less trade is actually not completely correct.
00:11:07
Speaker
Is that the right conclusion to draw?
00:11:09
Speaker
That's absolutely right.
00:11:10
Speaker
In fact, there's new foreign direct investment data that was just recently released that clearly shows globally foreign direct investment is down already for about five years running.
00:11:21
Speaker
But Asian foreign direct investment inflows hit another record high last year.
00:11:26
Speaker
So there's still a sense that really, yes, globalization may be fraying at the edges, but the center of gravity of global manufacturing really is space and stays in this part of the world.
00:11:39
Speaker
Yeah, and this is what makes the job of an equity strategy so exciting, right?
00:11:44
Speaker
Divergent trends on the macro side.
00:11:46
Speaker
And then you have these, the DRAM goes here, batteries isn't going in another direction.
00:11:51
Speaker
It changes the dynamics of these markets.
00:11:52
Speaker
So it keeps us busy for quite some time to come, I suspect, Fred.
00:11:57
Speaker
Yeah.
00:11:57
Speaker
And despite all the headlines, again, you know, numbers are down.
00:12:01
Speaker
There's plenty to keep us entertained and excited about this region.
Cultural Insight: Durian as an Export
00:12:15
Speaker
So Harold, you've been in Asia for decades now and there's always a test for somebody who's come to Asia and lived here for many years to see whether they're truly adopted regional culture and that is, do you like durian?
00:12:29
Speaker
That smelly fruit, of course, that people love or hate?
00:12:34
Speaker
Well, I really have no choice, Fred, because my wife is an absolute crazy durian.
00:12:40
Speaker
It's a typical Southeast Asian fruit, right?
00:12:44
Speaker
It's smelly, it's pungent.
00:12:45
Speaker
So I've actually, over the years, learned to enjoy it.
00:12:49
Speaker
So I'm a big fan of durian.
00:12:51
Speaker
What about you?
00:12:53
Speaker
I haven't quite adopted the taste just yet.
00:12:55
Speaker
Maybe it needs another couple of decades or so.
00:12:57
Speaker
But there's a lot of people in China that have just gotten… And it's booming.
00:13:01
Speaker
In fact, demand is booming.
00:13:03
Speaker
And we get some interesting numbers out of Thailand, in fact, which is, of course, a big durian agricultural goods producer.
00:13:10
Speaker
So Thailand is now exporting more durian to the rest of the world than it's exporting rice.
00:13:16
Speaker
And remember, Thailand is among the top three rice exporters in the world.
00:13:20
Speaker
So it's a lot of smelly fruit being exported of Thailand.
00:13:23
Speaker
In fact, also just from Thailand to China, 42 percent of exports from Thailand going into mainland China are
00:13:32
Speaker
in April were actually durian fruit, 42%.
00:13:34
Speaker
It's almost half the shipments that Thailand sent.
00:13:37
Speaker
Imagine that.
00:13:38
Speaker
More durians being exported than car components or something like that.
00:13:41
Speaker
Probably, yes.
00:13:42
Speaker
I wonder how they do that because it's a big, heavy fruit and you have to break it open and the skin is, of course,
00:13:48
Speaker
I mean, you can't just hold it.
00:13:49
Speaker
It's a duri, they call it in Malay, the spikes.
00:13:51
Speaker
That's where the name comes from.
00:13:53
Speaker
And it's really only grown in real deep tropical climates because you need a long ripening season to get there, which is why very often at the start of the rainy season, that's when durian is ripened and sold.
00:14:05
Speaker
But for example, in the northern Philippines, it's already not warm enough to grow durian.
00:14:09
Speaker
So specific regions, but you always know when it's durian season, because even here in Hong Kong, if you drive with a car or bus past the supermarket and it's durian period, you can actually smell outside on the road the whiff of durian coming out of the supermarket.
00:14:26
Speaker
And in Southeast Asia, often the hotel rooms, they have a no smoking sign and no durian sign as well.
00:14:32
Speaker
That is right.
00:14:33
Speaker
It is a pungent fruit, but over the years I've really come to appreciate it and I hope that you soon will become a fan of it too.
00:14:41
Speaker
Well, Harold, you're a true Asian now.
00:14:44
Speaker
That's right.
00:14:46
Speaker
And on that note, we're going to wrap up the show here.
Podcast Wrap-up and Forum Announcement
00:14:49
Speaker
Thanks for joining us on The Banyan Tree.
00:14:51
Speaker
A quick reminder, HSBC clients can sign up for the Global Emerging Markets Forum, which runs online from the 18th to the 29th of September.
00:14:59
Speaker
Head to hsbcscheduling.com to get your name down.
00:15:03
Speaker
And if you have any questions, email hsbc.gems.forum at hsbc.com.
00:15:10
Speaker
Well, that's lots of dots on HSBCs from all of us here in Hong Kong.
00:15:15
Speaker
Take care, and we'll speak to you again next week.
00:15:19
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:15:22
Speaker
We hope you enjoyed the discussion.
00:15:25
Speaker
Make sure you're subscribed to stay up to date with new episodes.