The ASEAN bid: policy risk to the fore

Tue May 14, 2013 12:42am EDT
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By Vidya Ranganathan and Umesh Desai

SINGAPORE (Reuters) - Investors are becoming increasingly picky about which bonds and stocks they buy in Southeast Asia's fast-growing economies as the risk of policy bungling makes them more discerning.

The ebb and flow of cash from money managers and retail investors into Indonesia, the Philippines, Thailand and Malaysia is still on balance an inflow into these markets. The dynamics have however changed, with marked differences between countries.

Unlike in 2011 or 2012 when the simple risk-on and risk-off switches could trigger flows in and out of the region, investors are a lot more discriminating.

Malaysia, conventionally a flight-to-safety market, is in demand at the conclusion of a tight election, but high-yielding Indonesian rupiah bonds are also sought after, despite a recent downgrade in its sovereign ratings outlook.

The Philippines continues to impress markets with growth rates and reform talk. The country even got a surprisingly early upgrade to investment grade last month. Yet, investors find Philippine bonds and stocks expensive, and don't want to bear the risk of those promised reforms being derailed.

High-yielding Thailand, meanwhile, is giving foreign investors cold feet with talk of capital controls and a public feud between the central bank and finance minister over what to do about the strong baht. Some have pulled money out. Others are staying invested in Thai bonds to ensure they get the benefit of a possible rate cut.

But, the region is undoubtedly in flavor. Citibank reported, using data from fund tracker EPFR, that Asian regional funds excluding Japan were the only ones with meaningful inflows last week, receiving $386 million, whereas Greater China funds saw $302 million of outflows.

And data compiled by ANZ Bank showed Malaysia received $144 million and Indonesia $161 million in the week to May 8, the highest in Southeast Asia. Thailand got $132 million and the Philippines just $102 million.   Continued...

A general view of the retreat during the ASEAN Summit at the Prime Minister's Office in Bandar Seri Begawan April 25, 2013. REUTERS/Ahim Rani