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Dollars flee from India to Southeast Asia

Southeast Asia is getting most of the money pulled out of Indian stocks by foreign institutional investors.

As Indian stock markets and the value of the rupee continue to fall, where has all the money gone?  

Southeast Asia is getting most of the money pulled out by foreign institutional investors, says Reuters, which cites India’s “policy paralysis and slowing growth.”

Burdened by a rising current account deficit and unable to push through any meaningful economic reforms, India’s government is under pressure to cut spending. But austerity is especially tough in a country where the very poor still make up the vast majority of voters and an election is around the corner in 2014.

Meanwhile, economic growth has slowed to a three-year low, while the fiscal deficit widened to 5.9 percent of GDP in the last financial year, Reuters said.

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“India was sold on the promise of high growth which simply hasn’t panned out over the past four years,” the agency quoted Gautam Prakash, founder of U.S. based hedge fund Monsoon Capital, as saying.

Foreign investors pulled a net $540 million out from India in March and April, compared with $13 billion in inflows in January-February.

“You’re seeing a situation where the ‘I’ in BRIC is being replaced by Indonesia,” Tim Condon, head of research and strategy for Asia at ING, told the news agency.

Other experts said outflows from India to Southeast Asia are likely to continue to increase.

Though the report says all of ASEAN is benefiting, the country that receives the most attention is Indonesia:

“India was a 9 to 10 percent growth economy when the BRICs were put together and now it’s slowing. Indonesia was a 4 to 5 percent growth economy and it’s moving in the other direction,” ING’s Condon said.

Indonesia and the Philippines, meanwhile, have neither current account nor significant budget deficits to worry about, although they do share some of India’s problems such as their own fuel and food subsidies, Symphony Financial Partners’ Baran said.

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With combined GDP of $2 trillion, 10-member ASEAN is angling for foreign investment. Ranging from resource-rich Indonesia to impoverished Laos and financial centre Singapore, ASEAN is planning a union by 2015 to allow for free flow of goods, capital, services and labour.

Does this mean I’ve found my next home?