BofA Global Research-Asia Watch FDI trending series #2 ASEAN Land of the risin...

BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 10 to 11. 12563199 Asia Watch FDI trending series #2: ASEAN: Land of the rising FDI ASEAN FDI surge & positive economic spillovers Since early 2010, FDI into ASEAN has doubled to over $200bn in 2022 by our estimates, accounting for 11-12% of global FDI (vs. 4-5% a decade ago). A similar uptrend is also seen in net direct investments, which points to a “real” acceleration, rather than distortions from “in-transit” flows through Singapore into rest of ASEAN. Within ASEAN, the influx of FDI has been broad-based across the various economies and has likely played a key role in lifting capex growth and raising economic/trade complexity. FDI drivers diversified across ASEAN Taking a closer look at key FDI trends by sources and sectors: (1) Indonesia has been a major beneficiary of commodity down-streaming & EV-related FDI, mostly from North Asia; (2) For Malaysia, Europe & N. America are driving FDI into electronics, while flows from China has slowed (3) Vietnam has benefited most from supply chain shifts given proven track record and proximity to China, and (4) Singapore has gained not just from stronger financial flows, but also “real” investments into manufacturing and services. Near-term FDI outlook for ASEAN still positive At this juncture, we see encouraging signs pipeline FDI announcements/commitments that the uptrend in direct investment flows into ASEAN will likely continue further. However, a global hard-landing scenario could pose significant downside risk but this is not our baseline expectation over 2023-24. Several factors support medium-term FDI outlook Key medium-term drivers that will help attract FDI into ASEAN’s include (1) ASEAN’s growing consumer markets, both in size and affluence, (2) Increasing importance of a “China+1” diversification strategy, (3) Implementation of trade agreements which should further reduce FDI restrictiveness, and (4) Further improvement in infrastructure. Exhibit 1: FDI inflows into ASEAN and China ($bn) ASEAN attracted over $200bn in FDI in ‘22E, sharply higher vs. annual avg of ~$100bn in early 2010s Source: BofA Global Research estimates, UNCTAD, Haver. Notes: (1) Figures up to 2021 as published by UNCTAD, and (2) 2022 figures extrapolated using UNCTAD methodology. BofA GLOBAL RESEARCH 048121606012018024020002001200220032004200520062007200820092010201120122013201420152016201720182019202020212022ASEAN-6ChinaASEAN-6 (% share of global FDI, RHS)26 May 2023 GEM Economics Asia Mohamed Faiz Nagutha Asia & ASEAN Economist Merrill Lynch (Singapore) +65 6678 1054 mohamed_faiz.nagutha@bofa.com Kai Wei