Political turmoil hits SE Asia's top markets

Political upheaval is driving a split in Southeast Asia's financial landscape, as investors bet that the worst may finally be over in Thailand but only just getting started in Indonesia.

- ANUCHIT NGUYEN WINNIE HSU MATTHEW BURGESS

Foreign investors have pulled $653 million from Indonesia's stock market this month, the worst period of selling since April as violent protests and the abrupt replacement of the finance minister rock the country.

Thailand's long beleaguered stock market looks set to reap the benefit: Aberdeen Investments, Gama Asset Management and Valverde Investment Partners now say the market stands out as the hot pick among the two, and a prolonged exodus of foreign funds has slowed to a trickle.

The moves underscore the shifting environment for emerging market funds investing in Southeast Asia, long a region defined as much by political turmoil as economic opportunity. While Thailand has for years been roiled by changing governments and civil unrest, Indonesia has been a relative source of stability. That is now starting to change, forcing investors to reconsider their approach to both countries.

"Thailand is seen as coming from the bottom toward stabilising as the new cabinet gets formed, but Indonesia seems to be heading the opposite direction - from bad to worse," said Xin-Yao Ng, a fund manager at Aberdeen Investments, adding that he is now increasing his exposure to Thailand while remaining underweight on Indonesian assets.