Political unrest and violence in Malaysia and Thailand have concentrated investors' minds on the need to spread their investment exposure outside their home nations, a report says.

Political unrest in Malaysia and Thailand is helping to drive Southeast Asians into putting more money further afield, notes Cerulli Associates, the US-based research firm.

Thailand’s largest city, Bangkok, was the scene of a bombing during August, while Malaysia has been rocked by a huge political scandal concerning alleged laundering of funds via the state-run 1Malaysia Development Berhad fund (see here).

Such developments have encouraged investors to put money elsewhere, encouraging greater international diversification, which is arguably a healthy move anyway, Cerulli associate director Shu Mei Chua said in a note. 

In both Malaysia and Thailand, the largest global managers, including Franklin Templeton and Schroders, are the top choices for feeder fund strategies (feeder funds have been the preferred route for foreign investment managers seeking retail assets). Global names such as BlackRock and State Street Global Advisors amassed assets under management exceeding $1 billion across both Malaysia and Thailand without an onshore office in 2014. Going forward, Southeast Asian managers will likely be picking out more exotic, sexier funds for their product shelves, the report said.

"The master-feeder arrangement isolates foreign managers from the risks of keeping an onshore presence, and circumvents cumbersome distribution issues related to the ASEAN CIS scheme. Feeder funds will likely remain the most-preferred route for global managers to access retail assets in Southeast Asia," says Yoon Ng, Cerulli's Asia research director.