Executives, investors and politicians in Southeast Asia should make more effort to work together to promote integration between Asean countries, said delegates at the Julius Baer Next Generation Summit 2013 in Bali on Friday.
Panelists stressed the importance of the Asean Economic Community (AEC) – Southeast Asia’s version of the European Union, set to come into effect in 2015 – which aims to connect participating nations’ economies and promote initiatives such as cross-border trade.
One plan involves the formation of an Association of Southeast Asian Nations (Asean) stock market, which would be a tremendous benefit to the region, says Tony Fernandes, chief executive of Malaysian budget airline Air Asia. (The Asean Trading Link, which launched in September last year, is a major part of this plan.)
“Good policy is often done during bad times,” Fernandes told the audience. “I’ve been lobbying for an Asean stock market for some time. There’s so much capital moving out. We should really help each other now. And integration can help combat capital moving out.”
Southeast Asia, like many emerging market regions, is hugely vulnerable to the fickleness of foreign investors – Indonesian stocks alone have suffered $2.8 billion in outflows this summer. Many point to depreciating currencies, growing current-account deficits and the US Federal Reserve’s hints at tapering its quantitative easing programme as reasons for the exodus.
And while the atmosphere was mostly upbeat in Bali, delegates agreed that volatility in Southeast Asia will continue.
Meanwhile, panelists contributed various views on Singapore’s role within the region.
As construction and development continues across the region, the city-state should be used as a model, said Simon Tay, chairman of the Singapore Institute of International Affairs. The Lion City, very much a tropical metropolis, has managed to remain “cool and comfortable” with very little pollution.
Yet most investment opportunities in Southeast Asia lie outside Singapore, he notes, making it essential for the city-state’s innovators and investors to remain “plugged in” to the region.
While Singapore is the financial centre of the region and a global hub, agrees Fernandes, it could stand to learn from its neighbours, highlighting the creativity, innovation and freedom of Jakarta and Kuala Lumpur. “I have a different definition of cooler,” he adds. “I think Singapore can learn from Jakarta.”
Transportation was another main point of discussion, and one that ranks high in importance in Southeast Asia. While the infrastructure is in place in certain countries, many governments are laden with debt, said Bin Chua Hak, head of emerging Asia economies for global research at Bank of America-Merrill Lynch. And he does not expect any resolution to that issue in the near future.
“It’s happening – but slowly,” Bin says. “They have the infrastructure, but there have been many issues around funding.” He highlighted Malaysia’s rising debt costs in particular. The Philippines and Thailand have embarked on major infrastructure development projects in recent years.
When it comes to linking the region, the AEC’s open-skies initiative aims to create more competition among airlines. That in theory should improve productivity, put pressure on airlines to reduce costs and, ultimately, pass on cost savings to customers.
“I’m pro open skies,” Fernandes says. ”But Indonesia hasn’t signed on, and Singapore has issues with it. There must be trust to make this work, and at the moment most Southeast Asian countries are looking over their shoulders to see who gets more.”
Instead of worrying about being left behind, he adds that politicians should focus on whether their populations will benefit and whether various industries will improve.
The budget airline industry in Asia is underdeveloped compared to that in Europe, and introducing more budget airlines will have favourable wide-ranging benefits, says Stefan Hofer, emerging markets strategist at Swiss private bank Julius Baer.
“Discount airlines are so important [for small business growth],” Hofer told AsianInvestor on the conference sidelines. "Cheap airlines allow for small business owners to meet clients and suppliers, for example. The future of small businesses is [dependent] on the rise of discount carriers.”