Indonesia and India Transform from ‘Fragile Five’ to Investor Favorites

Sudirman Central Business District or SCBD, South Jakarta, Indonesia

Indonesia and India, once labeled as part of the “Fragile Five” by Morgan Stanley, have undergone a significant transformation, emerging as investor favorites. The strength of their short-term and long-term fundamentals has attracted considerable attention from analysts and fund managers worldwide.

According to Kitty Yang, an analyst at Fidelity International in London, both countries have witnessed robust growth supported by sustained and positive reforms over the past decade. Prime Minister Modi’s leadership in India and President Jokowi’s initiatives in Indonesia have played pivotal roles in driving these reforms, fostering investor confidence in their economies.

Fund managers from Fidelity International, Robeco Group, and abrdn have expressed optimism about the prospects of bonds and currencies in India and Indonesia. They attribute this optimism to the success of reform programs and prudent fiscal policies implemented by both governments.

The term “Fragile Five,” originally coined to describe countries like Turkey, South Africa, and Brazil, highlighted the risks associated with heavy reliance on foreign investment for economic growth. However, India and Indonesia have defied this categorization, demonstrating resilience and attracting substantial foreign investments.

Foreign investors have shown increasing interest in Indian and Indonesian bonds, injecting a total of US$14 billion into these markets in 2023. This influx of capital marks the highest combined inflow to both countries since 2019, underscoring the growing confidence in their economic prospects.

Indonesia, in particular, has been commended for its disciplined fiscal management, with its fiscal deficit consistently maintained below the 3% threshold. Despite the challenges posed by the pandemic, the country has remained steadfast in its commitment to fiscal prudence, earning praise from international investors.

Looking ahead, analysts anticipate continued positive momentum for both India and Indonesia. Stephen Chang of Pacific Investment Management Co. in Hong Kong emphasizes Indonesia’s commitment to economic stability, expressing confidence that the country’s prudent policies will endure under the new government.

While Indonesia gears up for general elections in February 2024, investors are increasingly reassured by the country’s deep-rooted reforms and commitment to economic resilience. This shift in perception reflects a broader recognition of Indonesia’s evolving economic landscape and its potential as a key player in the global economy.

In conclusion, the transformation of India and Indonesia from the “Fragile Five” to preferred investment destinations underscores their resilience and determination to drive sustainable economic growth. With ongoing reforms and prudent policies, both countries are poised to attract further investment and cement their positions as leaders in the region.