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Mark O' Donnell
 · 
Research Analyst
July 13, 2022
 · 

Indonesia and Malaysia emerge as top contenders for investment

  • 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.
  • Southeast Asia is seen as relatively secluded from rising geopolitical tensions in Europe.
  • As Indonesia and Malaysia absorb capital, India, South Korea, Indonesia, the Philippines and Taiwan experienced large FPI outflows in recent months.
Indonesia

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 whether 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 June 9. 

Indonesia, with a GDP of $1.12 trillion and a population of 271 million, 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 largely to mergers and acquisitions, as well as rapid growth in international project finance due to loose financing and major infrastructure stimulus packages. 

Desmond Loh, a portfolio manager at JPMorgan Asset Management, was cited in an April 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 that "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 in the height 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 own currency. 

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