KUALA LUMPUR, Aug 31 — Global investors are increasing their investments in Indonesia and Malaysia, betting that these markets will gain more compared to other emerging economies as the United States’ Federal Reserve appears poised to implement monetary easing.
Bloomberg reported that robust fiscal policies and a focus on emerging technology sectors like electric vehicles and data centres are drawing investment to Indonesia and Malaysia. These South-east Asian markets, often overshadowed by larger rivals like India and China, are now attracting increased attention from investors.
“Indonesia and Malaysia will benefit more from their responsible fiscal behaviour, which is the thing you need because the Fed pivot in theory is a boon for the entire emerging-market universe,” John Lin, a portfolio manager at AllianceBernstein in Singapore, told Bloomberg.
In August, Indonesia, Malaysia, and the Philippines were the only Asian countries to experience net foreign inflows into their stock markets, according to recent Bloomberg data.
Foreign investment in Malaysian stocks has reached US$491 million (RM2.12 billion) through August 29, the highest monthly total since March 2022. Malaysia has experienced two quarters of exceptional economic growth, supported by investments in technology and AI-driven data centres. Its role as a chip-testing hub has attracted significant infrastructure spending from major companies like Microsoft Corp., Nvidia Corp., and Alphabet Inc.
“Malaysia is looking more interesting than it has in a long time,” Vivian Lin Thurston, a fund manager at William Blair Investment Management in Chicago, was quoted as saying.
“A couple of our EM strategies have started to invest in Malaysia in recent times in light of the country’s economic improvement and growth of data centres. We hope to broaden the exposure to other strategies.”
Global investors have also purchased US$1.8 billion in Indonesian shares, the largest amount since April 2022, following significant buying in July. This surge has driven the Jakarta Stock Exchange Composite Index to achieve consecutive record highs recently. Bond inflows into Indonesia are projected to reach their highest level since January 2023, based on data up to August 28.
Expectations are rising that, with concerns about the rupiah’s weakness easing, Indonesia’s central bank may have room to ease monetary policy after an unexpected rate hike in April. Additionally, the new government’s commitment to fiscal discipline and Indonesia’s involvement in the global electric vehicle and battery supply chains are maintaining investor interest.
However, risks still remain. In Malaysia, a sudden reversal in the AI sector, similar to the volatility seen in early August, could lead to market fluctuations. In Indonesia, investors closely monitoring the country’s leadership transition as they seek assurance of policy continuity under President-elect Prabowo Subianto. Additionally, the US election presents a potential risk for Asian assets, with any increase in geopolitical or trade tensions likely to affect investor sentiment.
But for now, optimism remains high, even among sell-side strategists.
This week, Bloomberg reported that Nomura Holdings Inc. upgraded equities in both Indonesia and Malaysia, highlighting their solid macroeconomic fundamentals. Similarly, HSBC Holdings Plc observed that Indonesian stocks are increasingly gaining prominence in the portfolios of Asian funds.
In August, both the Malaysian ringgit and Indonesian rupiah ranked among the top three gainers against the US dollar in a group of over 20 emerging-market currencies. Fed Chair Jerome Powell’s recent announcement that it’s time to lower the key policy rate has bolstered expectations that borrowing costs will start to decrease from September.
Currency analysts anticipate that further weakness in the US dollar will boost emerging-market currencies. With foreign currency reserves at banks in Malaysia and Indonesia approaching record levels, based on data compiled by Bloomberg, additional support is expected as exporters convert their dollars into local currencies.
John Foo, founder of Valverde Investment Partners Pte, noted that South-east Asia is “undervalued, under-invested, and under-researched”. He told Bloomberg that the region is entering a new phase as global investors reallocate their positions there.
