The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Global investors are increasingly focusing on Indonesia and Malaysia, betting that these markets will benefit more than other developing nations as the Federal Reserve looks set to ease monetary policy. These two Southeast Asian markets are becoming attractive due to sound fiscal policies and a focus on new technology sectors, such as electric vehicles and data centers, which are drawing in more funds.
Key Highlights:
Increased Inflows to Indonesia and Malaysia:
- Indonesia, Malaysia, and the Philippines were the only countries in Asia to see net overseas inflows into stocks in August.
- Foreign investors bought $1.8 billion of Indonesian shares, the highest since April 2022, helping the Jakarta Stock Exchange Composite Index reach record highs.
- Foreign buying of Malaysian stocks reached $491 million by August 29, the highest since March 2022.
Attractive Factors:
- Indonesia: The potential easing of monetary policy, fiscal discipline, and its role in the global electric vehicle and battery supply chains.
- Malaysia: Strong economic growth, driven by investments in tech and AI-driven data centers, and its position as a chip-testing hub attracting significant infrastructure spending from companies like Microsoft, Nvidia, and Alphabet.
Currency Performance:
- The Malaysian ringgit and Indonesian rupiah are among the top-performing emerging-market currencies against the dollar this month, driven by expectations of the Fed cutting its key policy rate soon. The weakening of the US dollar is expected to continue supporting these currencies.
Risks and Challenges:
- Investors are cautious about Indonesia's leadership transition and policy continuity under President-elect Prabowo Subianto.
- In Malaysia, a rapid reversal of the AI trade could lead to market volatility, while geopolitical tensions and US elections could weigh on sentiment.
Outlook and Optimism:
Nomura Holdings upgraded equities in both Indonesia and Malaysia due to solid macro fundamentals, while HSBC noted that Indonesian stocks have gained more prominence in Asian funds' portfolios. Southeast Asia is viewed as undervalued and under-researched, presenting a potential opportunity for global investors.
Overall, the positive sentiment and anticipation of further US dollar weakness provide a favorable environment for continued investment inflows into Indonesia and Malaysia.
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