Indonesia’s "Black Swan" Incident

Over the weekend, escalating protests in Indonesia and the latest leadership turmoil in Thailand are heightening political risks in two major emerging stock markets in Southeast Asia.

Last Friday, Indonesia’s stock index fell by 1.5%, ranking among the worst-performing indices globally. Thailand’s stock market also dropped by 1.1% on the same day, placing it among the poorest-performing markets.

In response to deadly riots over rising living costs and inequality, President Prabowo canceled his planned visit to China. Protesters even targeted the residences of Indonesia’s finance minister and some members of parliament. Meanwhile, in Thailand, politicians are vying for leadership of the new government after Prime Minister Paetongtarn Shinawatra was disqualified.

These challenges come at a time when global capital is considering shifting to Southeast Asian markets due to lower valuations and the potential for interest rate cuts.

John Foo, an analyst based in Singapore, said, "Political risks in Indonesia will rise, and the risk premium for Indonesian stocks will also increase. We are underweight on Indonesia because valuations do not reflect the underlying issues in the economy."

The trigger for the protests in Indonesia was anger over housing allowances for members of parliament—almost 10 times the monthly minimum wage in Jakarta. Subsequently, tax hikes, large-scale layoffs, and inflation further fueled dissatisfaction among low-income groups. On Sunday, Prabowo announced that parliament would cancel the generous allowance.

Thailand has been plagued by political infighting for decades, with economic growth lagging behind neighboring countries. Conservative politician Anutin Charnvirakul claimed on Friday evening that he had secured enough support to become prime minister, stating that the country cannot afford to "remain stagnant."

Compared to Indonesia, analysts are more optimistic about Thailand. John Foo pointed to cheap valuations and expressed hope that the new prime minister would stimulate the economy.

In August, Indonesia’s stock market attracted a net inflow of $676 million in foreign capital, while Thailand saw an outflow of $670 million. So far this year, Thailand’s stock market has fallen by about 10%, while Indonesia’s has risen by approximately 11%, hitting an all-time high before the recent turmoil.

Nirgunan Tiruchelvam, an analyst at Aletheia Capital in Singapore, noted that despite the current volatility, the situation does not "change the long-term outlook," supported by potential monetary policy easing and attractive market valuations.