South East Asian economies have had it rough. Not long after they start recovering from the Asian cr...
South East Asian economies have had it rough. Not long after they start recovering from the Asian crisis of 1998 and 1999, they have to undergo yet another crisis caused by falling exports to the US.
Repercussions from the US economy have been keenly felt by some of the South Asian economies. Malaysia's manufacturing sector, which makes up two-thirds of GDP, fell for the eighth month in a row, by 12.6% in October. Malaysian chipmakers are hurt by the fall in demand from the US and exports slid 13% in October from a year earlier. The economy shrank 1.3% in the third quarter compared to a year earlier.
The Malaysian government made serious efforts to improve the economy since the economy's fall in 1999.
Angus Tulloch, head of global emerging markets at Colonial First State Investments, says: 'The political situation in Malaysia has improved considerably. The government has recognised it needs to level the playing field. This means no matter how well connected a company is, it will eventually have to prosper or fail on its own merits.'
With fierce competition in other Asian economies, Malaysia is far from being an attractive investment location. Compared to economies such as China and Taiwan, it does not offer competitive cost savings or a substantial domestic market.
'The Malaysian stock market is not very attractive in valuation terms,' says Tulloch. 'There is still a shortage of quality entrepreneurial companies in which to invest. Our main holding is IOI Corporation which has interests in palm oil plantations and residential property development.'
Indonesia is worse off than Malaysia, as the government is not doing enough to improve its prospects, thus repelling foreign investment. The country expects inflation to run at 11.9%, higher than the 9.3% previously forecast.
'We are even more cautious on Indonesia than on Malaysia,' says Tulloch. 'The main problems relate to devolution/secessionist pressures from some islands, as well as an unwillingness to restructure the local banking industry.'
Indonesia is struggling with its public debt. Public debt amounts to 90% of economic output. 'If Indonesia can deal with the debt in an efficient way then the rupiah will strengthen and that will service the need for the dollar in financing the debt. Hence the economic situation revolves around the public debt. The US and the IMF both support Indonesia, but it is up to the government to improve its situation.'
Foreign investors are not likely to show an interest in either Malaysia and Indonesia unless they see major reforms to the economies.
All-day event on 24 April
Consequences could be more severe than in stress tests
AFH has six segregated mandate funds
Variable operating expenses