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Recent market turmoil may have spurred an exodus of funds from Southeast Asia's markets, but Japanese companies are piling in – and shunning China.
In the wake of the Bank of Japan's massive easing program, Japanese bank lending and capital is pouring into Southeast Asia, with acquisition activity picking up, HSBC said in a report. "Corporate Japan is also taking the plunge, setting up more and more factories across Southeast Asia."
It's more than just caution over investing in China, it said. "China is no longer the highly competitive export platform it used to be," HSBC said. "It also reflects the growing pull of markets like Thailand, Indonesia, and Vietnam as promising consumer markets in their own right and increasingly competitive export platforms."
Why is investment swinging away from China?
"We can see from a survey of Japanese exporters that they are becoming increasingly worried about the political situation between Japan and China," said Robert Prior-Wandesforde, head of economics for Southeast Asia at Credit Suisse, citing a survey from Japan External Trade Organization, or Jetro. Last year, a territorial dispute over the East China Sea islands flared up, spurring tension between China and Japan, with violent protests on the mainland leading some Japanese firms to shut down factories temporarily.
Japan's currency has weakened sharply in the wake of the BOJ's April pledge to pump $1.4 trillion into the Japanese economy over the following two years, marking the world's most aggressive quantitative easing program.
(Read More: Corporates take emerging market volatility in stride)
The weaker yen should probably have slowed investments into Southeast Asia as it makes investments at home more attractive and investments overseas more expensive.
Japanese companies aren't terribly likely to keep their investments in their home market, even with the weaker yen, Prior-Wandesforde said. "It's still an expensive place to locate and produce," he said, noting there are also concerns about power supply amid ongoing problems at the Fukushima nuclear plant in the wake of the March 2011 earthquake. The plant has been taken offline as radioactive material continues to leak, with the resulting outcry putting the fate of Japan's other nuclear plants in jeopardy.
(Read More: China risks following Japan into economic coma)
"(Companies) see better opportunities to meet demand elsewhere in the region than they do in their own market, which is aging rapidly and where consumer spending is still very depressed," he said.
HSBC noted the yen's weakness appears to be actually accelerating the investment flows.
"With the BOJ holding its foot firmly on the gas, expect this to rise a lot further," it said.
To be sure, not everyone thinks the BOJ's easing is driving Japanese investment toward Southeast Asia.
Corporate investments take a while to decide upon, indicating the Japanese corporate investment boost may be unrelated to the stimulus measures introduced in April, Prior-Wandesforde said.
"Japanese companies have taken the view that a number of these Southeast Asian countries offer significant opportunities, particularly to meet domestic demand," he said. Japanese manufacturers, especially in the auto segment, have targeted Indonesia's growing middle class, while heavy supply-chain investment in Thailand is of long-standing, he noted.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter