Stormy waters

Category: Asia, Global, U.S.A.

With a surprise military coup, drama on the high seas and rioting in the streets, the last few weeks have been a white-knuckle ride for ASEAN, if nothing else. What with Thailand’s reversion to rule by the generals (for the 12th time since its absolute monarchy was abolished in 1932), and anti-Chinese sentiment exploding onto the streets of Hanoi, the groundwork for next year’s proposed implementation of the ASEAN Economic Community is perhaps looking shakier than ever.

One fund manager Asia Asset Management spoke to this month joked that Myanmar, which after decades of corrupt military rule and foreign investment neglect is emerging as an intriguing frontier prospect, currently looked boring by comparison to the rest of the region. Even the Sultanate of Brunei’s introduction of an austere application of Sharia law seems to have largely slipped under the radar.

The reaction of the market to these various crises has not been uniform by any measure. In the immediate aftermath of General Prayuth Chan-ocha’s ouster of Yingluck Shinawatra’s government in late May, stocks on the SET Index initially dropped sharply, before making gains in the following days on the back of optimism over the army’s proposed economic and political reforms. There is hope that General Prayuth’s rule may finally get the country, which has been intermittently unstable since a previous army coup in 2006, back on an even keel in the short to medium-term.

That said, comments by the head of Thailand’s Government Pension Fund, one of the country’s major institutional investors, that it will increasingly seek to instead invest in foreign countries like India and Indonesia, will not inject optimism into the domestic market.

Vietnam has similarly hit the self-destruct switch. The country’s VN Index was a star performer in the early part of this year, but in May it was walloped firstly by profit-taking and then by a dispute over contested parts of the South China Sea.

Like one or two other ASEAN members, Vietnam has sought to stand up to China’s assertive foreign policy. The fervent, and at times violent, nationalism witnessed recently though will do little to encourage foreign investors to build factories in the country and much to annoy China, also its biggest trading partner.

The Philippines, so often referred to as the ‘Sick Man of Asia’, finally looks ready to pass that undesired moniker onto one of its neighbours (probably Thailand). Under the competent administration of Benigno Aquino, the country has cracked down on tax evasion and smuggling, while boosting infrastructure spending. It has been duly rewarded with two major credit upgrades in the last year. Much, however, will ride on national elections two years from now and the pace of the recovery of the US economy.

In ASEAN though, nothing is a given.