JAKARTA – As the Indonesia story seems to be souring, countries like Thailand and the Philippines are soaring.
Not long ago, Southeast Asia's largest economy – Indonesia – was considered to be the golden boy of the region, with investors pouring money into the country to capitalize on its recent consumer and commodity-led boom. More recently, investors have been taking some of their money out because they're worried that rising inflation, falling commodity prices and policies seen by foreigners as protectionist could knock the wind out of the archipelago's sails. Foreigners have pulled some $2 billion out of the government bond market and have helped push the Indonesian rupiah down.
As they reconsider Indonesia, though, some investors seem to be rediscovering other parts of the region — especially Thailand and the Philippines, which are generating more business buzz than any time in recent memory.
Over the last 12 months, Indonesia's benchmark index has edged up only 1% in contrast to the close to 20% jump in the Philippine stock market and a 13% rise in Thailand's bellwether index.
"To some extent, the euphoria baton has been passed to Philippines and Thailand and away from Indonesia," said Robert Prior-Wandesforde, the Singapore-based director for Asian economic research at Credit-Suisse. "Foreigners are becoming a little bit more nervous about the Indonesian story."
Investors are excited about the Philippines in part because they believe President Benigno Aquino III is making headway in his campaign to battle corruption, boost efficiency and increase tax revenues – some of the same initiatives that helped get Indonesia on track in recent years. Those initiatives have also helped lead the country to a series of credit-rating upgrades, boosting investor confidence.
In Thailand, meanwhile, investors have been buoyed by a strong rebound in the economy following last year's devastating floods, which temporarily shut down much of the country's industrial production. Thailand is on track to post 5.5% growth this year versus 0.1% last year, according to HSBC.
There also is a lot of interest in Malaysia these days, though mainly from government-backed funds, as investors eagerly follow a series of high-profile initial public offerings there. Those offerings include plantation firm Felda Global Ventures Holdings Bhd., which raised $3.3 billion on the local stock exchange in June in the world's second-largest IPO this year.
Indonesia's economy, to be sure, is still cruising along at a respectable clip. After expanding 6.5% last year, most economists think it can at least clock another 6% this year even with the persistent problems in Europe.
However, the country has seen a surge in imports – a common phenomenon in countries with fast-growing middle classes getting their first taste of more expensive imported goods. Some analysts fear a trade deficit powered by surging imports could be a sign that Indonesia's economy is overheating as an inability to serve local demand forces more imports.
The country could also be heading towards an inflation problem, economists warn. While inflation is less than 5% currently, analysts fear further growth could eventually trigger hard-to-control price increases as outdated and overstretched infrastructure adds to costs and an increasingly-emboldened labor force demands more raises.
Of course, it's not as if Indonesia's big competitors don't have some problems of their own. Among other issues, the Philippines is still struggling to improve its crumbling and overloaded infrastructure – a key demand of many investors before committing more money to the country. Thailand is grappling with seemingly insoluble — and potentially violent — divisions left over from the 2006 ouster of former Prime Minister Thaksin Shinawatra, who is living in exile. And Malaysia is facing an election by early next year that could be the most competitive and divisive in its history.
All of that may serve as a reminder: There just aren't a lot of super-safe places to park money these days.
Written By Eric Bellman - Wall Street Journal
