Investors dip toes, but don't dive into Indonesia, the Philippines
Investors dip toes, but don't dive into Indonesia, the Philippines
Jennifer Chen, Reuters, Singapore
Indonesia and the Philippines, long viewed by foreign
investors as the untouchables of Asia, are quietly creeping back
onto fund manager radar screens.
But retirees and their risk-averse kin should think twice
before pumping their savings into these two countries, which have
only taken a mere step or two away from the brink of economic and
political crisis. These markets, especially Indonesia, are still
strictly for the brave and risk-hungry, analysts say.
Economists are trumpeting the simmering down of political
tensions in these two Southeast Asian hotbeds -- President Gloria
Macapagal Arroyo just marked her first year in office -- and the
resilience of their economies in the face of last year's
slowdown.
That's a marked change from their earlier reprimands over
these countries' enormous economic and social problems.
"The environment is improving dramatically given the gradual
reforms that are taking place, in particular the moves towards
privatization. There's good opportunity. Especially because
prices have been beaten down so much," Mark Mobius, president of
Templeton Emerging Markets Fund, told Reuters in a telephone
interview from Sydney.
Mobius, who manages a portfolio of Asian equities worth US$4
billion, excluding Japan, said his fund was invested in both
Indonesia and the Philippines.
He is not alone in seeing good value in these markets. J.P.
Morgan Chase noted that portfolio inflows into the Philippines
last year were 2.56 billion pesos ($49.8 million) compared to a
6.93-billion baht ($157.5 million) outflow from Thailand. So far
this month, the Philippines has seen a modest 306 million pesos
($5.9 million) in inflows.
Notably, recent bond issues from the Philippine government has
attracted some foreign investor interest. Earlier this month, the
Philippines launched a $750-million 15-year sovereign note,
increased from its original size of $500 million, and an
additional $250 million worth of Eurobonds due November 2005.
Underpinning some of the rising confidence in the Philippines
and Indonesia among fund managers is the growing strategic
importance of these countries, especially in the eyes of major
aid donors like the United States.
As with Pakistan, the September 11 attacks highlighted for
Washington the strategic importance of political stability in
Indonesia, the world's most populous Muslim nation, and the
Philippines, which has been dealing with a Muslim insurgency in
the south for decades.
Indeed, some investors viewed the deployment of U.S. troops in
the southern Philippines to conduct joint military operations
against Muslim rebels accused of having links with the radical al
Qaeda network as a positive development.
"If they can solve the terrorist problem in the south -- and
it's not that easy because it has been going on for generations
-- yes, that's definitely bullish," said Mobius.
Besides military aid, the United States has also pledged
economic assistance to Manila.
Some political analysts say Jakarta may be angling for the
same sort of U.S. aid if they establish a link between homegrown
radical Muslim groups and al Qaeda.
For now, the fact that 90 percent of Indonesia's 210 million
people are Muslim will make multilateral donors such as the
International Monetary Fund, less likely to pull out even as
Jakarta drags its feet on privatization and other reforms.
But analysts are warning that foreign investors are still not
ready to board planes to Jakarta and Manila quite yet.
That's because less stormy administrations and possible U.S.
aid are still neither enough to alleviate painful memories of the
Asian financial crisis nor mitigate the need, especially in
Indonesia, for reform.
"I think one of the big lessons for investors in the last
couple of years about being in Indonesia and the Philippines is
what the policymakers say is one thing... And actions speak
louder than words," said Peter Redward, a strategist at Deutsche
Bank in Singapore.
Indeed, in Indonesia's case, few expect a reversal of the
trend last year, when foreign investment approvals plunged 41.5
percent to $9.03 billion from $15.42 billion.
And a calmer situation in the southern Philippines could take
the country's risk factor down a notch, but would not prompt a
deluge of new direct investment.
"There are a lot of other things that have to be done,
especially in regards to corruption... There are security issues
in Manila and elsewhere that are quite independent from
terrorism," said Bob Broadfoot, director of the Hong Kong-based
Political and Economic Risk Consultancy.
Above all, the Philippine government had to win its battle
with its bulging budget deficit.
Still, Manila can be relieved that its situation is much less
precarious than Indonesia, which is dealing with external debt of
over 100 percent of gross domestic product, several brewing
political scandals, and a handful of separatist movements.
"Just look at the volume of distressed assets that Indonesia
is holding and not selling," Broadfoot said.