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Long-time members know that Indonesia (NYSEMKT: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

Source: Indonesia: A Hidden Gem