By John Macaraniag, investment banker

Australia is in a unique position in the region; the counterbalance between the East (China) and the West (US). Bilateral relations with the likes of China, India and Japan for Australia remain key as strategic partners; yet one part of Asia which is growing in relevance is the ASEAN region. Forecasts show that the region is forecast to be the fourth largest economy by 2040, driven by a growing population. 

But the fact of the matter is, Australian investment in Southeast Asia is underweight and has fallen in strategic relevance. According to DFAT, Australian foreign investment stocks in ASEAN countries were worth only $123.1 billion in 2022, 3.4 per cent of total investment stocks abroad ($3.7 trillion). 

This provides a good starting point for Australia in realising its economic potential with its immediate neighbours. It is timely that the government launched its new ASEAN 2040 strategy which sets out the ambitions, objectives and vision to take advantage of the emerging super region. 

This ambitious strategy aims to address the gaps in investment in many key areas, including by creating a $2 billion Southeast Asia Investment Financing Facility to provide loans, guarantees and similar incentives to boost trade, particularly in energy, and by launching regional tech hubs in Jakarta and Ho Chi Minh City, which should improve the connectivity and foster cultural awareness in the region. Initiatives such as the New Colombo Plan by DFAT already provide the cultural sharing needed to achieve the country’s 2040 ambitions. 

Australia can be an emerging power in education, energy and healthcare 

The ASEAN strategy demonstrates that Australia is committed to closing the gaps of investments in the region, and finally now leveraging off the idea that it can be an upcoming soft power in fields including education, energy and healthcare.

But what about the investment landscape? We have to be cognisant of the broader investment landscape in the ASEAN region before making judgement on whether Australia is doing enough. According to Bain & Co, Southeast Asia's overall deal value fell 39 per cent to US$9 billion in 2023 compared to the previous five-year average of 2018-2022. The consultancy cited challenging exit conditions and a lack of deal opportunities to explain this slump.

Conditions have not been ripe for investing into emerging markets in Southeast Asia; stubborn inflation, a general flight to well-known, developed market sectors means managers are staying ultra conservative in decision making, preferring to allocate equity funds to benchmark tracking indices, cash, and high quality fixed income assets. Let’s face it too – it is easier to invest in the US and Europe, for example, than it is in Southeast Asia.

For this reason, large institutional investors and asset managers would generally stick to broader benchmarks for exposure, not taking an active risk exposure to ASEAN assets specifically, to safeguard from any benchmarking error. Lack of liquidity and access is also a factor, which can cause difficulty in sizing up exposures properly, so meaningful investment via the public, listed markets could take some time. 

Economic partnerships are slowing emerging 

So, is Australia building real economic partnerships in Asia? Slowly and steadily, yes. Opportunities going forward may be built around private and government initiatives where incentives are available to create a longer time horizon to be able to reap benefits that more risk averse investors in listed markets may not prioritise. In order to make meaningful inroads, we need more Australian businesses willing enough to establish a physical presence in the ASEAN region, navigating through the cultural differences, language and potential sovereign risks. 

The further liberalisation of trade agreements is needed along the lines of the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), under which 99 per cent of Australian goods (by value) will enter Indonesia duty-free or under significantly improved preferential arrangements. According to the Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto, trade value is up 90 per cent since the agreement’s enablement in 2020. These results should bode well for future conversations with other ASEAN nations.

Ultimately this will come down to an education process for Australian corporations, so they can understand the incentives available to invest and also understand that the longer term rewards are there from engaging in one of the fastest growing regions in the world.

John Macaraniag is a Global Market Salesperson at Societe Generale Corporate & Investment Banking - SGCIB and part of the Asia Society Australia Generation A Network. 

The views expressed are personal and does not reflect SGCIB.

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