December 6, 2016 10:00 am JST
FT Confidential Research

ASEAN -- Trump a Pandora's box of uncertainty

Post-election outflow of money casts shadow over region

The prospect of Donald Trump as US president has cast a shadow of uncertainty over Asean's medium- to long-term growth prospects, as well as the region's delicate intra- and inter-regional political alignments.

Mr Trump's fiercely protectionist stance on global trade issues has already culminated in the axing of US involvement in the Transpacific Partnership (TPP). Many economies in Asean have a high degree of exposure to global trade, and are likely to suffer from any slowdown in this growth engine for the region, particularly as their exports are already anaemic. This is especially true for Thailand and Malaysia.

While many observers expect China to step in to fill the void left by a reduced US political and military presence, it would be a mistake to assume that one of China's highest profile strategic initiatives - its One Belt, One Road (Obor) plan - will automatically drive this process.

There was considerable financial market volatility in November across much of the region, with net sales by foreign investors in fixed income and currency markets, as well as on Asean's equity markets (see chart).

Further signs of economic and market weakness will undoubtedly start to impact consumer sentiment. Later in this report we include analysis of the outlook for household savings in Indonesia, as well as examining potential demand for, and likely winners in, mobile payment services across the region, as ecommerce continues to flourish.


With concern growing over capital outflows Indonesia's central bank recently announced plans to loosen a requirement that commercial banks report their cash reserve ratios to the bank daily, allowing them to do so every two weeks instead.

Indonesian bond yields have risen over the past month (see chart), foreign reserves dipped below $115bn and the central bank is planning to increase its holdings of government bonds to limit the impact of further sell-offs by foreign investors, who account for nearly 35 per cent of the market.

Political risk is also rising. A recent spate of viral social media messages - including some alleging that certain banks were insolvent - spooked some people into withdrawing bank savings. There is also a growing backlash against Jakarta governor Basuki Tjahaja Purnama, with Islamic activists now also accusing President Joko Widodo of protecting the Christian governor. Further protests in Jakarta are imminent.

Rumours abound about the backing, both political and financial, for such a large-scale mobilisation of protesters. There is speculation that former president Susilo Bambang Yudhoyono is involved, with his son Agus Yudhoyono running against Mr Purnama in the February gubernatorial election. The Yudhoyono family has denied any involvement.

Pollsters show increased support for Mr Agus, at the expense of Mr Ahok. Irrespective of the outcome, we expect attacks against the president from his political foes to escalate next year, particularly as he eyes re-election in 2019.


The recent official naming of Crown Prince Maha Vajiralongkorn as king is a formality but represents a first step towards his succession. Thailand has remained quiet since the king's passing and the military is certain to maintain its tight grip on the country during this sensitive time.

The government has announced a Bt38bn ($1.1bn) loan scheme to support rice farmers dealing with a slump in prices, providing a temporary boost to spending in rural areas. But the poorest farmers will need substantially more assistance, and we believe the junta may implement a more substantial programme in 2017.

Exports tumbled 4.3 per cent year-on-year in October on a US dollar, balance-of-payments basis (see chart). From January to October, outbound shipments contracted 1.5 per cent on an annual basis. Although imports rose 7.4 per cent year-on-year in October, Thailand still posted a $1.8bn trade surplus for the month and a $2.9bn current account surplus.

Growth in tourist arrivals slowed in October to 0.46 per cent year-on-year, likely due to news of the king's death. However, arrivals were still up 11.3 per cent year-on-year for the January to October period. Thailand's tourism industry continues to grow at a healthy pace, though slightly less rapid than in recent years.

As with other Asian currencies, the baht weakened in November, though it remains one of the few on the continent that has actually posted a year-to-date gain against the US dollar, albeit just 1 per cent.


Unsurprisingly, given that Malaysia has the highest exports-to-GDP ratio of anywhere in the Asean 5, at 74 per cent, the prospect of a more protectionist US under president-elect Donald Trump has resulted in a slump in the ringgit. The currency has depreciated 6.3 per cent against the US dollar in just the three weeks since the presidential election (see chart).

This has been exacerbated by capital outflows from Malaysia's financial markets, with yields on 10-year government bonds rising 84 basis points across the month to 4.46 per cent and the Kuala Lumpur Composite Index falling 2.2 per cent.

The weakened ringgit will squeeze companies that rely on imports, including dairy product maker Dutch Lady, car manufacturer MBM Resources, low-cost carrier AirAsia and broadcaster Astro, or those with unhedged foreign borrowing, such as telecoms giant Maxis.

In contrast, companies that have foreign-denominated revenue streams will fare better, such as infrastructure conglomerate YTL, for which 60 per cent of revenue comes from outside Malaysia. Export manufacturers like Unisem and Top Glove will also benefit, as will the tourism industry.

The slumping ringgit is unlikely to affect government finances too severely at this stage. Of the government's Rm643bn ($144bn) in debt, 96.5 per cent was ringgit-denominated at the end of Q316. Furthermore, a stronger dollar could even boost government revenue from oil and gas, which is dollar-denominated.

Nonetheless, the weaker ringgit will affect the government's propensity to spend, particularly since financing costs for major infrastructure projects are certain to rise. The government's debt-to-GDP ratio hit 69.9 per cent last year, up from 68.2 per cent in 2014, and we anticipate that this figure will rise to at least 71 per cent by the end of this year.

Prime Minister Najib Razak has in recent weeks played down the likelihood of calling a general election in early 2017, but we still expect him to dissolve parliament and seek a new mandate by the end of 2017 - it must be held by August 2018 at the latest - in order to take advantage of a weakened opposition.


For all the concerns about rising political risk in the Philippines, it remains one of Asia's fastest-growing economies. GDP grew 7.1 per cent year-on-year - 1.2 per cent quarter-on-quarter - in the third quarter, beating consensus expectations of 6.7 per cent. Registered investment was up 35.5 per cent year-on-year year-to-date, boosted by a few big-ticket renewable energy and transportation projects.

Nonetheless, as we have previously noted, high growth has come at the expense of a worsening trade deficit, with the latest figures showing import growth significantly outpacing exports in September.

Boosting onshore manufacturing is thus crucial to sustaining growth, particularly given the uncertainty lingering over trade with the US - the country's second largest trade partner.

Manufacturing expanded 7.3 per cent year-on-year in the third quarter, with the Department of Trade and Industry hoping to achieve sector growth of 8-10 per cent annually until the end of the government's term in 2022.

Mr Duterte retains the backing of a number of key political actors and civil institutions. The senate approved an increased national budget for 2017 in late November - the fastest such approval by the Senate in recent years.


The failure of the TPP is a blow to Vietnam, which stood to benefit more than most in Asean. However, the immediate economic impact will be limited. The government still expects GDP growth to accelerate to 6.5 per cent in 2017, up from about 6 per cent this year.

Vietnam will continue to attract new investment in manufacturing regardless of TPP's failure, and particularly given bilateral free-trade agreements with the EU and South Korea. We anticipate the government will attempt to secure more bilateral arrangements with key trading partners in place of the TPP.

Most macro indicators remain relatively stable, with industrial production up 7.2 per cent year-on-year in November (7.3 per cent year-on-year year-to-date), and manufacturing expanding 13.1 per cent. Inflation has continued rising, although that is from a low base and it remains at manageable levels.

This article was first published on Dec. 1 by FT Confidential Research.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. A team of researchers in these key markets combine findings from proprietary surveys with on-the-ground research to provide predictive analysis for investors.

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