Indonesia: A Hidden Gem

Long-time members know that Indonesia (IF) has been a favorite of mine that is oftentimes overlooked by even savvy global investors.

This year, it is one of the best performers in the world with a growth rate just a bit behind China. Other attributes are its rich natural resources, less reliance on exports relative to its neighbors, and its growing consumer class which fuels 65% of GDP.

Other positives are its appreciating currency and strong banks. Jakarta’s banks are among Asia’s best-capitalized banks. Then there is political stability.

Susilo Bambang Yudhoyono, re-elected last month as Indonesia’s president, expects faster growth next year and a narrowing of the country’s budget deficit alongside a likely increase in inflation.

Indonesia has been less affected by the global slowdown than many, thanks to relatively sturdy domestic consumption, due in part to spending associated with this year’s legislative and presidential elections and a lower dependence on exports. The finance ministry has projected south-east Asia’s largest economy to grow by 4.3 per cent this year. The resilience of the economy helped Mr Yudhoyono cruise to victory with 60.8 per cent of the vote.

In his 2010 budget announcement, the president said the government was targeting growth of 5 per cent in 2010. He said Indonesia planned to trim its deficit to 1.6 per cent of gross domestic product from an expected 2.5 percent this year, calling it a “safe and appropriate” level. The International Monetary Fund last week said Indonesia could afford a 2 per cent deficit in 2010 to maintain sufficient fiscal stimulus.

Next year’s deficit is to be financed via government bonds and foreign loans from the World Bank, Asian Development Bank, International Development Bank, the president said.

Following the announcement to parliament, finance minister Sri Mulyani Indrawati said oil production will rise further to 1.01m by 2014. She forecast economic growth would increase further to 6.2 per cent in 2011, rising steadily to 7.2 per cent in 2014.

Indonesia on Monday posted June exports of $9.33bn, up from $9.26bn in May, but still down 27 per cent year-on-year.

Prakriti Sofat, economist for HSBC, said the export tally “reflects stabilization. Things are turning around.” Nikhilesh Bhattacharyya, associate economist with Moody’s Economy.com, said “The recent uptick in commodity prices following last year’s collapse and firming external demand are helping to boost outward trade.”

My only concern about Indonesia (IF) at this point is valuations that have come up sharply with the market this year. Buy on any sharp dips.

Disclosure: No position

Comments

[whidbey:]

I invaded Indonesia once, personally, while in the navy. We came by rubber boats and were going to take a landing beach area, but it was uninhabited and we just walked in. It was not what you call a hospitable land, the quite welcome notwithstanding.

I discovered a very primitive society and I saw my first explosion of a bus full of people pasted to building fronts, and the mistaken beheading for a man thought to have thrown the bomb. No one but me was much concerned over the events. Culture shock perhaps?

I agree there is a lot of room for development in the country (as if last year when I visited), but it is still very Islamic, crowded and not well governed (lots of side payments required to do business - illegal for US citizens to pay).

Maybe portfolio investment is OK, but I would watch even that. They are not a standard business climate by any means. On the other hand maybe I got off on the wrong foot or something.

Aug 11 01:56 PM

[Albert Meyer:]

"... lots of side payments required to do business - illegal for US citizens to pay)."

We make it legal in the US by laudering the bribes through lobbying firms. We need to teach the Indonesian the art of lobbying and all the other "legal" ways in which our politicians rip us off. Telkom Indonesia (TLK) is a good way of investing in Indonesia. Mobile phone revenue prospects are encouraging in the fourth most populated country in the world. Do your own due diligence.

Aug 12 09:31 AM

[HaavBline:]

What and which island did you invade? Indonesia consist of hundreads of islands spread out over a very wide area, many of which are quite isolated and primitive.

I agree TLK is the best Indonesian play, even more so than other telecom infrastructure plays in other emerging countries. The reason is simple, Wireless infrastructure is even more important for Indonesia because often it is the only means that ties all those island tribes to the country.

On Aug 11 01:56 PM whidbey wrote:

> I invaded Indonesia once, personally, while in the navy. We came
> by rubber boats and were going to take a landing beach area, but
> it was uninhabited and we just walked in. It was not what you call
> a hospitable land, the quite welcome notwithstanding.
>
> I discovered a very primitive society and I saw my first explosion
> of a bus full of people pasted to building fronts, and the mistaken
> beheading for a man thought to have thrown the bomb. No one but me
> was much concerned over the events. Culture shock perhaps?
>
> I agree there is a lot of room for development in the country (as
> if last year when I visited), but it is still very Islamic, crowded
> and not well governed (lots of side payments required to do business
> - illegal for US citizens to pay).
>
> Maybe portfolio investment is OK, but I would watch even that. They
> are not a standard business climate by any means. On the other hand
> maybe I got off on the wrong foot or something.

Aug 14 11:23 AM