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India stands to benefit from the US further restricting investments into strategic sectors in China, thereby reducing global companies’ exposure in that country, Moody’s Ratings said Friday.
While more protectionist trade policies will also increase credit risks for Japanese and Korean automakers, certain sectors in India and parts of Southeast Asia such as computer and electronic products, and textiles could benefit from new growth prospects in the US. India’s pharmaceutical and consumer electronics industries could benefit the most.
Highlighting that global companies will continue to divert investments from China to other parts of Asia Pacific (APAC) and the rest of the world, it said: “Asean and India could be attractive because they are receptive to foreign investments and their manufacturing competitiveness is increasing”.
Asean, or the Association of Southeast Asian Nations, comprises Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Moody’s expects opportunities for Indian pharmaceutical companies that are already leading suppliers of generic drugs into the US.
“This sector could benefit from the US potentially lowering dependency on China for sourcing active pharmaceutical ingredients in generic drugs manufacturing,” it said, adding that Vietnam and India would be beneficiaries in consumer electronics as investments are diverted away from China.
While China currently has one of Apple Inc’s largest production facilities, Hon Hai Precision Industry Co Ltd (Foxconn) and Pegatron Corporation have already set up facilities in India that manufacture various iPhone models. Following Tata Electronics’ acquisition in October 2023 of a 100% stake in Wistron Corporation, the company is expanding its iPhone assembly hub in India.
“We expect the China+1 strategy-multinational companies maintaining a significant presence in China while establishing or expanding production capacity in another country-continue as these companies de-risk from China over time,” Moody’s Ratings said.
However, the extent of additional gains from trade and investment diversion remains to be seen, since shifts in regional supply chains have been underway since 2018, it cautioned.
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