Two recent announcements by large consumer companies should show investors that Indonesia is the new place to invest in. Coca-Cola (KO) and Starbucks (SBUX) have both committed millions of dollars in the promising growing Asian nation.
Coca-Cola announced a large $700 million investment in Indonesia over the course of three years. Coke is hoping to capitalize on the growing middle class. Disposable income is becoming more present for individuals and families in the Asian nation. Coke may be one of the biggest beneficiaries of the growing middle class. The middle class is expected to double in the nation by 2020. Over the next seven years, Coke will capitalize on more disposable income.
American and world coffee giant Starbucks also announced plans for expansion in Indonesia. Starbucks plans on opening 100 Starbucks locations in Indonesia over the next three years. Chief Executive Officer Howard Schultz just returned from a visit to the southeast Asian region. The coffee company currently has 700 stores in six southeastern countries.
The expansion for Starbucks seems like a natural fit. Starbucks has sourced coffee beans from the Asian nation for quite sometime. Some of the popular beans used in limited time holiday coffees come from Indonesia. Just like Coca-Cola, Starbucks is counting on the rising middle class and growth in disposable income in the country to sustain expansion.
In 2011, the nation of Indonesia had a population of 242.3 million. The gross domestic product increased 6.4% in 2011 to $846.8 billion. According to World Bank, the country's long term development calls for strong growth through 2025. GDP is expected to rise 6.2% in 2013 and 6.5% in 2014.
So what does this expansion by these two consumer giants mean for regular investors? The time to get behind Indonesia is now. ETFs that devote themselves to Indonesia saw large increases in 2012 or 2013 and this could be just the beginning. With the majority of Indonesian companies trading in their own country, these ETFs and one stock are the best way to invest in the growth of the nation.
Market Vectors Indonesia Index ETF (IDX) holds 40 stocks. Shares of the ETF trade close to their fifty two week high ($32.59), but actually fell in 2012. The companies that make up the ETF have to be listed in Indonesia or obtain half of their revenue from the Asian nation. This ETF has been around since 2009.
The Market Vectors ETF has heavy weightings in four categories. Financial companies make up 25%, basic materials make up 21%, consumer defensive stocks are 16%, and consumer cyclical stocks make up 13%. These four sectors make up 75% of the total assets in the ETF. The top ten holdings currently make up 56% of assets. The strong weighting of consumer focused stocks (29%) may bode well for the growing middle class.
MSCI Indonesia Investable Market Index ETF (EIDO) is another option for investors trying to capitalize on the Asian nation's growth. In 2013, the ETF is up 11.3% and trades near its 52 week high ($34.92). In 2012, the ETF was up only 1%. With 94 stocks in the ETF, the fund offers more companies than the Market Vectors ETF. In similar fashion though, the top ten holdings make up 60%.
The MSCI fund is very similar in its weightings as well. Financial stocks make up 21%, consumer cyclical make up 16%, basic materials represent 14%, and consumer defensive make up 11%. The ETF offers a basket of 94 stocks in the growing Asian nation.
My top ETF pick to capitalize on Indonesia's growth is Market Vectors Indonesia Small-Cap (IDXJ). The ETF holds small cap stocks that obtain 50% of their revenue in Indonesia. At $18.62 per share currently, the ETF actually trades close to its 52 week low ($14.35). So far in 2013, the ETF is up 22.9%, after a poor -27.5% performance in 2012.
The ETF is the newest of the three (opened in March 2012), which could be a huge opportunity for investors to get in before explosive growth. With a heavy weighting in real estate related companies, the ETF also offers something the other two don't. However, the ETF is a little riskier with a basket of only 24 companies and a heavy weighting in one sector (38% real estate).
I think the real estate weighting could prove beneficial and is worth the risk for investors. As the middle class grows, people will be able to buy houses and will need newly constructed stores and shopping malls. The ETF also has a 17% weighting in industrial companies, 13% in consumer defensive, and 11% in financial companies.
One of the few publicly traded Indonesian companies is PT Telekomunikasi Indonesia (TLK). The telecommunication company is one of the best ways to play the growing middle class of the country. More people will have money to spend on cell phones and eventually smart phones as disposable income rises. The stock trades close to its fifty two week high ($45.32). As of December 31st, PT Telekomunikasi had 171.1 million subscribers. The majority of of the company's subscribers are cellular customers (125.1 million). The company, founded in 1884, has a strong foothold on the market in Indonesia and is a clear winner from the growing middle class.
Indonesia is a growing hot bed for investors looking into emerging markets. The country has a huge growing middle class and continues to turn in 6% GDP gains every year. Investors should take the lead set forth this week by Starbucks and Coca Cola and invest in Indonesia.