Buy Japan. Buy Vietnam. Buy US media stocks. Buy Mexican food stocks. Sell China.
For investors wanting to take advantage of the Pacific Rim free-trade pact that appears to be nearing completion, that is what a savvy stock strategy might look like.
The 12 nations of the Trans-Pacific Partnership (TPP) could wrap up an agreement in coming weeks, after the pact cleared a major hurdle with US Congress’ decision to give broad negotiating authority to US President Barack Obama.
The deal, which covers 40 percent of the global economy and is expected to deliver US$295 billion in annual global economic gains, is expected to have long-term implications for Pacific Rim companies and for competitors in countries that are late to the party or do not join.
Although details of the deal are still under wraps and full implementation is years down the track, fund managers are starting to look at the implications for long-term positioning.
According to an analysis by the Peterson Institute for International Economics and the East-West Center, the US and Japan — the bloc’s economic heavyweights — are likely to win the most in US dollar terms, with big boosts to Japanese car and chemical exports and US services.
“It’s definitely on our radar,” said Geoffrey Pazzanese, who oversees non-US equity assets for Federated Investors Inc, which has more than US$350 billion in assets under management.
“We have a very large overweight in Japan and to me the biggest winner, country-wise, will be Japan,” he said.
In Japan, textiles and transport equipment are among the expected winners. Japanese exports of transport equipment are forecast to rise by 24 percent by 2025, according to projections in the Peterson study.
Still, diffuse global supply chains muddy the benefits and costs. Seventy percent of Japanese-branded cars sold in the US are built in North America, with Japanese carmakers such as Nissan Motor Co and Toyota Motor Corp ramping up investment in Mexico.
Mexico, Chile and Peru had already benefited from past trade deals and could do even better with the TPP, since it goes beyond traditional tariff-cutting pacts to set common standards in areas like intellectual property, PineBridge Investments Latin America managing director and investment strategist Stacy Steimel said.
“These countries have been able to increase their potential GDP growth on the basis of the wide range of trade agreements that they have negotiated and pursued. This one, because it goes even further, could bring even more benefits,” Steimel said.
The study suggests Vietnam and Malaysia will see the biggest relative gains, both economy-wide and by sector.
The biggest winner within low-wage Vietnam is expected to be clothing and footwear, with the study showing value-added output rising by 44.6 percent in 2025 and exports up US$52 billion.
Potential beneficiaries in the sector, which ships 60 percent of its output to TPP countries, include Thanh Cong Textile Garment Investment Trading Co and Northern Textiles and Garments.
Meanwhile, the US$57 billion US yarn and textile industry is hoping US negotiators win protections for a sector that is rebounding from a decade-long slump and sustains more than 1.5 million regional jobs.
However, Vietnam’s stock market offers limited investment options. Although the Ho Chi Minh Stock Exchange’s market capitalization rose by 15 percent between 2012 and last year, it is still just 1 percent of Tokyo’s and 10 percent of Kuala Lumpur’s exchanges.
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