Global trade, Chinese debt: Vietnam’s ship steady in the storm

MM may be embarrassed to have blithely forecast a “remain” victory in the UK’s June referendum, but he was also correct in being very early to take Trump’s political rise seriously (way back in February, on these pages, just after the first primary in New Hampshire). Today’s global financial news elicits a few thoughts on three items, starting with the dear old Trumpian phenomenon:

Presidential pivoting on trade: this time it’s different

The Clinton-Trump US presidential polls are much closer than any intelligent normal person would have thought. There really is something to this populist strain that Trump has tapped into. The traditional pivot of the candidate bashing free trade before getting elected to then vigorously promoting it once in the Oval Office is looking dead. That’s a given with Trump, but it probably also applies to Clinton. The Trans-Pacific Partnership trade deal is unlikely to happen.

Chinese debt: still there !

It seems a long time ago, back in August 2015 and then January 2016, when we were all obsessing over China’s economic difficulties, especially its mountain of debt (most of it corporate). New Bank for International Settlements data puts its end-first quarter 2016 total at 255% of GDP or $27.2tn. This compares to only 147% at end-2008. The point here is not the level – the advanced economy average is 279% – but the sharp rise compared to trend. The BIS puts the China ratio at 30% above its long term trend, which is a flashing red light. So, despite investors having had plenty of non-China issues to think about in recent months, the big issues for concern about the Middle Kingdom are very much still there. Vietnam is a very distinct economy from China’s, and this year’s stability of the dong suggests that global investors are increasingly attuned to this fact.

New emerging market export growth data: how does Vietnam stack up ?

Today’s FT reports on new emerging market export data compiled by UNCTAD. It’s bad, suggesting that the fall in such exports that took place in 2015 is still continuing into this year. Vietnam’s export growth has fallen too, but MM was curious to check the gap between overall emerging market export growth and just Vietnamese export growth. Here’s the result:-

Period       EM USD export growth   Vietnam USD export growth   Difference (Vietnam – EM)
2006-08             +18-20%                           +11-14%                                 -7 % points
2009                      -19%                                 -5%                                    +14 % points
2010-11                 +24%                              +9-10%                                 -14 % points
2012-14                +1-5%                             +11-17%                               +11 % points
2015                       -11%                                +12%                                  +23 % points
8M2016                -5-10%                               +6%                                   +13 % points

So Vietnam has been on a slowing trend for about three years now, just like emerging markets as a whole. But Vietnam’s outperformance of its peers has stayed strong or even got bigger. The data might be sobering from a global perspective, but from a Vietnamese one it is heartening: the secular trend of Vietnam’s rising market share of global exports looks to be as strong as ever. Which takes us back to the first point above: who needs the TPP anyway ? Not Vietnam it seems.

Mekong Man

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