VIETNAM could be best able to handle a diversification of Asia's manufacturing supply chains away from China, if the Sino-American trade relationship worsened, Credit Suisse has said.
The bank's research arm noted that Asian exports have become more intra-regional - helped by trade initiatives such as the Asean Free Trade Area, set up in 1992, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes Malaysia and Vietnam and could eventually add Indonesia, the Philippines and Thailand.
But it also warned that emerging Asia's growing slice of the global economic pie has come on the back of the region's manufacturing exports - a sector that may be headed for a decline.
The Credit Suisse Research Institute's new "Asia in Transition" report, which concluded that emerging Asian economies will account for 55 per cent of global economic output by 2050, looked at the "Asean 5" markets of Indonesia, Thailand, Malaysia, the Philippines and Vietnam.
These countries have scored better than developed economies on the macroeconomic environment pillar of the World Economic Forum's Global Competitiveness Index - an achievement attributed to their "robust external accounts and government-debt dynamics".
Meanwhile, manufacturing growth stemmed from either product specialisation, such as Vietnam's niche in cellular communications equipment, or breadth and volume, as in Thailand.
Still, Credit Suisse warned that "it is increasingly uncertain whether export-led growth will be as effective as it has been in the past", citing the potential for demand to stop growing.
Other risk factors flagged by the bank include large global output gaps after excessive capital expenditure, firmly entrenched supply chains, and the rise of anti-globalisation and populist protectionism.
The efficacy of the export-led growth model has arguably fallen over time, the report said, and "is only part of the solution to delivering sustainable growth in developing economies (the other being to stimulate domestic demand)".
Credit Suisse also observed that Indonesia, Malaysia, the Philippines and Thailand have seen a five to six-point gain in the service sector composition of their gross domestic products (GDPs) over the last decade largely because of declining contributions from manufacturing.
High-value-added manufacturing now makes up at least one-quarter of exports for Vietnam, the Philippines and Malaysia, according to data from the International Trade Centre and Credit Suisse research.
This is higher than the average of 18 per cent for the "Asia 12" economies, which also include Bangladesh, mainland China, India, Pakistan, South Korea, Sri Lanka and Taiwan.
"The corresponding squeeze has been in the share of mid-value-added manufacturing and raw material exports over the duration," said Credit Suisse. But it cautioned that Vietnam's headline manufacturing and trade data "may be distorted by the inclusion of assembly, testing and packaging rather than purely manufacturing of high-value exports".