The hostility towards several Temasek Holdings shareholdings that were once encouraged by their governments has cooled investment appetite, at least temporarily, in the two countries.

It is attributed to an upsurge of nationalism, as well as internal power play, by various groups in Bangkok and Jakarta, often at the expense of the foreign investor.

Only a few ruling elites decide Singapore’s foreign or trade policies; the opposition, the public or interest groups have little say.

In the past year since the squabbles over Bangkok’s Shin Corp and Jakarta’s mobile telcos, there has hardly been any large-scale Singaporean investment in these countries.

(The Thai and Indonesian problems have not been played out yet, but could result in billions of dollars in losses to Singapore.)

At the same time, Singapore’s global investment has risen; more of it is flowing towards countries like China, India, Australia and Vietnam.

Today, in the wake of the US sub-prime banking woes, new opportunities are emerging that could draw away more investment from South-east Asia.

The financial-property crisis has wiped off share values of US and European banks by 25%-30%, creating long-term bargains for cash-rich investors.

Some analysts believe Temasek Holdings may already have begun preparing funds for the move.

Last week, it sold US$1.1bil (RM3.7bil) worth of shares in three China companies – two banks and a shipping firm – possibly in preparation for any opportunist switch.

“If China could play second fiddle to the new opportunities in the US, how can South-east Asia compete?” a remisier asked.

In perspective, South-east Asia remains a crucial leg of Singapore’s economy despite the cooling off of interest.

A bank economist said: “Temasek’s billions will obviously continue to be invested in the region as long as they are not resented.”

It is not only the region’s internal uncertainty or political instability that is chasing away serious investors, but the global competition for investment has also become fiercer. The financial crisis in the West and the rising opportunities in China and India could result in a change in global investment trends, including Singapore’s.

This financial hub has already been building banking stakes abroad not only in Asia but also in the West, namely, Barclays and Standard Chartered.

And, aided by a cheaper US dollar, it is now set to hunt for bargains in the United States.

“Temasek will be very opportunistic. Banking and financial is its core focus. What it would look at is an institution that has some focus on emerging markets or Asia,” said a financial source.

It has a medium-term strategy to keep a third of its investment at home, a third elsewhere in Asia and the rest in developed markets. This could be readjusted to take in the new realities.

That, of course, applies to state funds but privately half of the total investments by Singaporean companies (which rose from S$87bil in 1994 to S$328bil in 2004), are still in Asia.

While it is more preoccupied with the world outside, Southeast Asia (which accounts for 12% of its total investment – in particular Indonesia and Malaysia) still ranks high in importance here.

China was the top destination, accounting for 12%, followed by Malaysia (8%), Hong Kong (7%), Indonesia (7%), and the United States (5%).

For the Republic, foreign relations and trade are intertwined and a cordial state of Indonesia and Malaysia is crucial to its welfare. For that reason, it will occupy a permanent importance.

For the moment, ties with Malaysia are on the mend and could improve further when the Iskandar Development Region project in Johor comes on line.

For Indonesia and Thailand, Singapore’s policy is to adopt a more passive approach to await a clearer outcome of an ongoing struggle between technocrats and nationalists.

The technocrats want to open the economy up for more trade and investment to create employment, while the nationalists want to protect the economy to prevent the benefits of growth going to foreigners.

Apparently, Temasek’s aggressive regional investment has upset nationalist sentiments and created suspicions in Bangkok and Jakarta. This obviously will have to slow down to a pace acceptable to the host nations.

“The danger of all this soft-peddling is that investment funds will not lie idly by while the world moves ahead,” said the bank economist. “It goes where the opportunities are – quickly.”

One of Singapore’s better known bloggers, yawning bread, says that an integrated market is important for Asean if it were to compete in the world.

Even if this dream is realised – and that's a big if – its market of 550 million still pales in comparison to China and India, with populations exceeding a billion each, he adds.

“But this perception may not be shared by our neighbours. Indonesia and Thailand are currently in their highly nationalistic phases. Malaysia has just come out of its own,” he adds.

“As things stand, there isn’t enough political will or vision in our neighbours to move forward.

“For the foreseeable future, Singapore will need to continue striking out on its own, forging economic links with major economies around the world.

“Thus we see intensive efforts at signing free trade agreements with other countries and trade mission after trade mission to places like India and the Middle East.”

The trouble is, if it succeeds, he concludes, Singapore will pull further ahead, which will further aggravate problems with its neighbours.

o Seah Chiang Nee is a veteran journalist and editor of the information website littlespeck.com

                                                      Home