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Economy

Asia's 'tiger cubs' will feast on FDI in next decade: Nomura

India, ASEAN inflows to soar 2.4 times as China and Japan fund infrastructure

SINGAPORE -- India and five key Southeast Asian countries can expect a surge in foreign direct investment in the years to come, according to a new report from Nomura. 

India and the so-called ASEAN 5 -- Indonesia, Malaysia, Thailand, the Philippines and Vietnam -- are likely to be raking in about $240 billion in total annual FDI by 2025, up from $100 billion in 2015, the Japanese financial services company's report says.

The report, released on Tuesday under the title "India and ASEAN: Asia's next FDI magnets," suggests the emerging economies will draw plenty of investment from China and Japan. 

Specifically, direct investment into the five Association of Southeast Asian Nations economies is projected to double to $113 billion, from $54 billion. Investment bound for India is to triple to $126 billion, from $44 billion, in the same time frame.

Nomura sees these six less-developed but rising "tiger cubs" surpassing the attractiveness of "aging tigers" concentrated in northern Asia -- China, South Korea, Taiwan, Hong Kong and Singapore.

A number of "pull factors" should draw additional investment into the six countries: large and growing domestic markets, infrastructure improvements, better investment conditions, sound economic management, political stability and readily available low-cost labor.

Currently, Nomura's FDI attractiveness scorecard has China at the top, due to the size and potential of its market. But India, which ranks second, has room for significant improvement if trade barriers and the investment climate are addressed, according to the report.

Eight Asian economies, including the ASEAN 5, made the top 10. The ranking covers 23 emerging nations in total. 

Neighborhood wealth

A lot of the money headed for the tiger cubs will come from within the region itself.

Japanese companies have been showing a strong appetite for overseas expansion, as their home market shrinks. And China's Belt and Road Initiative spells more outbound investment, as President Xi Jinping seeks to connect his country with the rest of Asia and Europe through infrastructure, the report notes.

There are risks. One concern is the potential impact of Chinese government controls on companies investing abroad. "The rapid buildup in China has increased the risk over the next few years of a sharp financial cycle downturn [in the country]," the report says.

Even so, "unless those risks materialize in a very significant way in a very short period of time, over the medium term, we will probably see the Chinese flows still coming through," Euben Paracuelles of Nomura Singapore said in a teleconference on Tuesday.

China's outbound FDI as a percentage of gross domestic product, at 1.6% in 2016, is still "much smaller" than that of Japan and has "quite a bit of upside," Paracuelles said.

Potential beneficiaries in the equity markets range from automobile component manufacturers to retailers to infrastructure-related businesses, according to the report. "Buy" recommendations in the report include Indian automotive supplier Motherson Sumi Systems, Indonesian construction company Pembangunan Perumahan, e-commerce and logistics player Singapore Post, airport operator Malaysia Airports Holdings and Philippine conglomerate Alliance Global Group.

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