WASHINGTON, July 6
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’s what a savvy stock strategy might look like.
The 12 nations of Trans-Pacific Partnership (TPP) could wrap up an agreement in coming weeks, after the pact cleared a major US hurdle with Congress’s decision to give broad negotiating authority to President Barack Obama.
The deal, which covers 40 per cent of the global economy and is expected to deliver $295 billion in annual global economic gains, will have long-term implications for Pacific Rim companies, and for competitors in countries that are late to the party or don’t 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 implications for long-term positioning.
As per an analysis by Peterson Institute for International Economics and East-West Centre, US and Japan — the bloc’s economic heavyweights — are likely to win most in 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, which has more than $350 billion in assets under management.
In Japan, textiles and transport equipment are among the expected winners. Japanese exports of transport equipment are seen rising 24 per cent by 2025, according to projections in the Peterson study. Still, diffuse global supply chains muddy the benefits, and costs. Seventy per cent of Japanese-branded cars sold in the United States are built in North America, with Japanese makers such as Nissan Motor and Toyota Motor Corp ramping up investment in Mexico.
Mexico, Chile and Peru had already benefitted 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, said Stacy Steimel, Latin America managing director and investment strategist for PineBridge Investments.
“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.”