Investments head east as major markets stagnate

Who needs the FTSE 100 when you can invest in Malaysian company shares or, even better, the Indonesian IDX stock exchange. These markets have roared to new highs in recent months and regained much of the losses they registered during the financial crisis. The Jakarta Composite Index had a relatively quiet day, climbing 11.01 points, or 0.4%, to close at 3,128. But a year ago the index was worth almost a third less at 2,235. Local newspaper the Jakarta Globe reported that about 6.36bn shares worth $380m (£245m) changed hands. It said overseas investors last week bought $222m more Indonesian shares than they sold, boosting net purchases so far this year to $1.6bn. By comparison the FTSE 100 has done little more than provide day traders with mild heart failure. An index that languished at 4,800 last September moved up to 5,800 before the election only to dive again to 4,800. Today it finished up slightly at 5,234. Markets in Japan and New York have followed much the same sideways path. So what do the smaller far eastern markets have that we don't? Could it be the sparkling narrative from investment banks about a bright future built on commodities such as coal, zinc, tin and copper. Surely not when most commodities have failed to regain their April highs and slowing Chinese growth is already reversing. It must be that these markets have gained simply because they hold the promise of gains away from stagnating western markets. The vast savings of companies and wealthy individuals sloshing around the global financial system, which runs to trillions of pounds, is constantly looking for a home. It wants the highest returns. At the moment Malaysia, Indonesia and Thailand are among the lucky recipients. Lucky that is until someone points out share values are over inflated and bear little relation to future profits. As more money flows into markets the index rises, when investors take fright and move their money out, the indexes will collapse. For the time being, these countries will talk about their economic miracle and what great places they are for investors, but it won't last. A bubble is a bubble and before long it will burst. Brazil is talked about as the next beneficiary/victim of investor cash. It largely escaped the financial crisis and is growing strongly on the back of exports to the west. The risk comes when financial advisers identify the country as the "next big thing" and the hot money flows out of Indonesia in favour of Sau Paulo. All these countries should be wary of providing a home for investor cash when it is fickle and in the main without allegiance or scruple. Like a teen lover, it is always on the lookout for the next conquest.