Investors are starting to take a second look at Asian countries for investment, with Indonesia and Malaysia emerging as among the most appealing in the region. The countries constantly figure on global investment banks' top picks for foreign investment targets globally or just in Asia, along with list staples Singapore, Hong Kong, China, and India.
Both situated in Southeast Asia, the countries played a large part in drawing $175 billion of foreign direct investments (FDI) to the subregion in 2021 and a record-high $619 billion for all of Asia the same year, according to the World Investment Report 2022 of the United Nations Conference on Trade and Development (UNCTD) that was published on Jun. 9.
With a GDP of $1.12 trillion and a population of 271 million, Indonesia ranked second in the 2021 Best Countries to Invest In ranking of U.S. News. Meanwhile, Malaysia, with a GDP of $365 billion and a population of 31.9 million, ranked fifth.
Protection From Global Tensions
Globally, FDI flows rose 64% year over year to $1.58 trillion in 2021, thanks mainly to mergers and acquisitions and rapid growth in international project finance due to loose financing and major infrastructure stimulus packages.
Desmond Loh, a portfolio manager at JP Morgan Asset Management, was cited on Apr. 3 CNBC report as saying that Southeast Asia is "relatively insulated" from rising geopolitical tensions in Europe, as Russia and Ukraine account for less than 1% of regional exports in the subregion.
Loh further noted,
"Strong commodity prices have also been beneficial for export earnings in Indonesia as well as the country's trade balance, and that's set to support the Indonesian rupiah as well as the nearer-term growth outlook in Indonesia."
Meanwhile, Malaysia was hailed the most attractive emerging Southeast Asian economy to investors by the Milken Institute. In its 2022 Global Opportunity Index, the think tank stated that the country outperformed six other emerging economies in categories such as relatively business-friendly institutional framework and deep financial services sector, with Malaysia being home to Asia's third-largest bond market. In the same index, Indonesia ranked third.
Outflows From India
As Indonesia and Malaysia absorb capital, the last nine months saw roughly $35.6 billion of equity and debt leaving India, fueling worries about existing cracks in the country's financial sector and the potential worsening of its overall macroeconomic instability.
The latest sell-off episode by foreign portfolio investors (FPIs) in the country marks the fifth time a similar major event happened and ended India's outperformance against Asian markets at the peak of the COVID-19 pandemic, according to London's Financial Times.
The Wire noted that South Korea, Indonesia, the Philippines, and Taiwan, have also experienced large FPI outflows in recent months. The situation is even more detrimental for poor and developing countries as the sell-offs could worsen already limited fiscal spaces and prompt those economies to issue debt denominated in their currency.