India and Indonesia, once labeled the “Fragile Five” by Morgan Stanley, have now become favored destinations for investors after a decade of successful reforms and fiscal discipline. According to fund managers such as Fidelity International, Robeco Group, and abrdn, the outlook for bonds and currencies in these Asian giants has significantly improved. The original “Fragile Five,” including Turkey, South Africa, and Brazil, was characterized by heavy reliance on foreign investment, but the tide has turned.
“Both India and Indonesia have strong near- and long-term fundamentals,” affirms Kitty Yang from Fidelity International, citing positive reforms over the past decade under Prime Minister Modi and President Jokowi. Credit-default swaps reflect this shift, with India’s dropping 85% since 2013 and Indonesia’s falling 70%.
Despite global market challenges, foreign investors injected a combined $14 billion into Indian and Indonesian bonds last year, marking the highest joint inflow since 2019. India’s bonds surged on the prospect of global index inclusion and the government’s unexpected announcement of lower-than-estimated debt sales. Prime Minister Modi, seeking re-election, highlighted the transformation from the “Fragile Five” era.
Kenneth Akintewe from abrdn Asia asserts that India deserves a credit rating upgrade due to improved fundamentals and resilience. Indonesia, disciplined in managing its fiscal deficit, has also made significant financial strides. Even with a new administration, economic policies are expected to persist, according to Stephen Chang from Pacific Investment Management Co.
Previously considered a risk factor, Indonesia’s upcoming presidential election is now perceived as less concerning, given entrenched reforms. Philip McNicholas at Robeco Group emphasizes the positive outlook for both Indonesia and India, pointing to their favorable longer-term economic prospects and room for further growth.
In conclusion, the transformation from the “Fragile Five” to investor favorites showcases the resilience and positive economic trajectories of India and Indonesia, making them attractive opportunities in both equity and fixed-income markets.