Capital Flows to Southeast Asia Rise, Indonesia Strengthens in the Financial Sector

There is good news, capital flows to ASEAN countries are rising. (Wikimedia Commons)

JAKARTA - Six Southeast Asian countries are increasing their role in the flow of capital to developing countries. A report by the Milken Institute, a non-profit institution from the United States that publishes many economic and investment reports, shows that Cambodia, Malaysia, Laos, Indonesia, the Philippines, and Vietnam account for 8.8 percent of the total capital inflows to developing countries in 2021-2024.

This figure is up from 7.6 percent in the 2017-2020 period. Quoted from The Business Times, Thursday, April 9, the Global Opportunity Index 2026: Growth Markets in Southeast Asia report said that the six countries are in a good position to capture new opportunities.

Of the total capital that entered the six countries, the largest portion came from foreign direct investment or FDI, namely 72.5 percent. This figure increased by 15.1 percentage points compared to the previous four years. On the other hand, portfolio inflows fell sharply to 8.5 percent, while inflows from the banking and other sectors fell to 19.1 percent.

Merger and acquisition activities were also recorded as relatively stable from 2017 to 2024, outside of the brief disruption after the start of the Covid-19 pandemic. In this case, Indonesia and Malaysia recorded the largest share, both in terms of the number of transactions and their value.

Malaysia is the best positioned country among the six markets. The country ranks 23rd in the world in the Global Opportunity Index, the highest in the Southeast Asian group discussed in the report. The Milken Institute assesses Malaysia's investment climate as relatively balanced because it is supported by strong institutions and a solid economic foundation.

Indonesia stands out in the financial sector. Its ranking in financial services rose to 38th in the world from 78 previously in 2022. The report also noted that Indonesia is ranked 17th in the world's largest economy based on gross domestic product.

The Philippines is considered to have strong growth prospects, but its investment conditions are not even. With a real economic growth projection of 5.7 percent in 2026, the country ranks sixth in economic performance and 32nd in economic fundamentals. However, weaker scores in business perceptions and institutional frameworks indicate that there are still governance and rule challenges.

Cambodia and Laos are still lagging behind other countries in this group. The Milken Institute, according to a report by The Business Times, assessed that structural and institutional constraints still weigh on the investment climate in the two countries. Laos is ranked 79th in the world in terms of institutions, while Cambodia is in 73rd position.

The report also highlights major changes in the region. Capital inflows into China fell 64.1 percent or US$295.2 billion compared to the previous four-year period. As a result, China's share in total capital inflows to developing countries fell by almost 20 percentage points to 14.7 percent in 2021-2024.