A woman holds a large stack of Indonesian rupiah bank notes in a street in Jakarta, Indonesia, April 27, 2018. Reuters/Willy Kurniawan
According to research from Facebook, half of all adults in Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan don’t have bank accounts. Photo: Reuters

Indonesia continued as a bottom East Asia performer on the core MSCI index, with a 12% loss through April, while Vietnam turned in the region’s worst monthly results to barely hang on to frontier index gains, as foreign investors spooked by general asset-class correction shunned  their high double-digit valuations and also reshuffled overweight bond positions.

Politics weighed on allocation in the wake of Malaysia’s stunning opposition-party upset rejecting the status quo, as Indonesian President Joko Widodo’s coalition tried to bridge geographic and religious divides ahead of June elections, and Vietnam’s Communist Party politburo intensified its anti-corruption purge against former senior officials while vowing to maintain a pro-business direction.

Bank weakness likewise provoked concern, as Moody’s Ratings upgraded Vietnam to “BB” while warning that the declared 3% bad-loan ratio was under-reported. Financials in turn led the Jakarta Stock Exchange sell-off with lukewarm embrace of the initial public offering of state giant Bank Rakyat’s Islamic arm, mainly intended to corral fresh funds for the government’s ambitious infrastructure program.

Vietnam’s first-quarter growth in gross domestic product was almost 7.5% and inflation was under 3%, according to Planning Minister Nguyen Chi Dung. Foreign direct investment rose 5% to $5 billion, and the trade surplus was $3.5 billion. The International Monetary Fund and World Bank predict 6.5% GDP growth for the year on buoyant exports and consumption, and the Asian Development Bank sees 7% as it urged greater liberalization, competitiveness and productivity strides through reducing state enterprises’ economic footprint.

Mobile phones assembled through Samsung facilities in Vietnam remain the top overseas sale item, at US$45 billion in 2017, with China and the United States the chief destinations.

Vietnamese authorities tout a diversification strategy beyond low-wage, young workforce manufacturing and traditional agricultural and natural-resource endowments to seize new markets and domestic company startups. Decree 38, issued this year, clarified the venture-capital framework with the goal of launching a million additional small companies by the end of the decade.

The Vietnamese government is continuing negotiations with other Trans-Pacific Partnership members after Washington’s exit, as a bilateral European Union agreement will soon go into effect eliminating almost all goods customs duties.

The country is 68th on the World Bank’s “Doing Business” ranking and advanced five spots on the World Economic Forum’s Competitiveness Index, with power and connectivity access largely accounting for improvement.

Public debt has come down to 65% of GDP, and foreign reserves are at a record $65 billion as the central bank keeps a 3% daily currency fluctuation band.

Credit expansion is still steep at 5% in the first quarter, a pace above the 17% annual target. System restructuring is proceeding through state-guided mergers and bad asset workouts, but officials acknowledge “many difficulties,” including a property-transfer tax blocking real-estate disposal. They are encouraging consumer loans, only one-fifth the total, and that business acted as a successful draw for private Techcombank’s May $925 million share placement subscribed by major global institutions such as Fidelity and Singapore’s sovereign wealth fund.

However. foreign ownership in banks is restricted to 30%, and in other listings to 49%, so bigger capitalization stocks ran up to 30 times earnings before understandable correction, especially since block trading liquidity is sparse.

In Indonesia, overseas investors as well dumped local bonds, where they control one-third outstanding, as net inflows were just $1 billion through April and benchmark yields spiked 100 basis points to 7.5%.

The rupiah tumbled past 14,000 per US dollar before “sizable” central -bank intervention, as it also urged companies to hedge foreign-exchange exposure beyond the minimum 25% to suppress greenback appetite.

Interest rates will likely be raised at Bank Indonesia’s next meeting after six months on hold, with inflation comfortably within range at 3.5%. First-quarter GDP growth was 5% on mainstay consumption, as April’s pricier oil imports contributed to the highest trade deficit in five years, and an estimated 2%-of-GDP current-account gap forecast that may not be readily covered if capital outflows persist.

Big state and private company borrowers abroad could get into trouble on heftier dollar repayments, and may first try to renegotiate credit lines with Indonesian banks, according to analysts.

Foreign direct investment climbed 12% in the first quarter, official statistics show, but the portfolio side drag may be too sizable to overcome near-term negative sentiment, in a common emerging-Asia refrain.

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