Political factors split Southeast Asia’s leading markets’ investment
Political upheaval is reshaping Southeast Asia’s financial landscape, with investors believing that the worst may finally be over in Thailand, while it appears to be just beginning in Indonesia. The moves highlight the changing landscape for emerging market funds in Southeast Asia, a region historically characterized by both political turmoil and economic opportunity. Thailand has long experienced turmoil from shifting governments and civil unrest, whereas Indonesia has remained a relatively stable nation. That is beginning to change, prompting investors to reevaluate their strategies regarding both countries.
Foreign investors have withdrawn $653 million from Indonesia’s stock market this month, marking the most significant selling period since April, as violent protests and the sudden replacement of the finance minister disrupt the country. Thailand’s long beleaguered stock market appears poised to benefit: Aberdeen Investments, Gama Asset Management, and Valverde Investment Partners now assert that the market is the standout choice between the two, with a prolonged exodus of foreign funds having slowed to a trickle. “Thailand is seen as coming from the bottom toward stabilising as the new cabinet gets formed, but Indonesia seems to be heading the opposite direction — from bad to worse,” said Xin-Yao Ng, adding that he is now increasing his exposure to Thailand while remaining underweight Indonesian assets.
Much of the optimism in Thailand stems from a political transition following the appointment of a new prime minister. Anutin Charnvirakul, a conservative elected following the ousting of his predecessor for ethical violations, is contemplating the revival of a Covid-era co-payment subsidy program to boost consumption. The baht has appreciated approximately 2 percent against the dollar this month, emerging as the top performer among Asian currencies. The stock benchmark SET Index has risen over 4 per cent this month, reaching a seven-month high, as the pace of foreign investors selling equities has decreased. In September, they have sold $21 million worth of Thai shares, following a $670 million sell-off in August. “Improved sentiment could push the index to 1,340 by year-end,” according to Prakit Siriwattanakage, managing director at Merchant Partners Asset Management. He said, “Inflows into the stock market will also support the baht.” Thailand’s strong fiscal position allows for economic stimulation and support for targeted areas, according to John Foo, who highlighted the favorable valuations of Thai stocks following previous selloffs. “This is an opportunity to overweight Thailand amid an improving political and economic climate,” he stated.
Indonesia presents a contrasting perspective. President Prabowo Subianto’s sudden replacement of Sri Mulyani Indrawati with Purbaya Yudhi Sadewa has unsettled markets. Indrawati earned the respect of global investors, whereas her successor, despite promises of prudence, remains largely unknown. “Indonesia is undergoing a period of heightened economic uncertainty,” stated Jason DeVito. The political changes “will introduce a degree of unpredictability for investors, particularly given Sri’s longstanding role in shaping the country’s reputation for fiscal discipline.” Indonesia intends to inject approximately 200 trillion rupiah ($12 billion) into the banking system to stimulate lending and growth, utilizing 400 trillion rupiah in cash reserves accumulated from previous underspending. Concerns over fiscal direction had been brewing for months, as Prabowo advocated for populist measures such as a free school-lunch program. Indonesia’s economy continues to show weakness, and the one-time stimulus provides only temporary relief, where the yield curve — the gap between two- and 10-year bonds — is near its steepest level in over two years.
The rupiah’s recent decline has pushed its loss against the dollar this year to over 1.5 per cent, positioning it as the worst-performing currency in Asia, following the Indian rupee. Purbaya is striving to secure investors’ approval. Days after committing a $12 billion injection to state banks, the finance minister indicated that the government would provide additional funds if necessary. The central bank has been called in to assist, implementing a burden sharing agreement aimed at fostering growth. However, foreign fund managers are still not convinced. “The Indonesian government still has a lot to prove,” said Aberdeen’s Ng. “I’ve actually been funding Thailand from more expensive markets by taking profit from China, Korea and tech in Taiwan.”
