One country often overlooked by investors is Indonesia. This is unfortunate given that it has the world’s fourth largest population, is the world’s largest Muslim country and is the world’s third-largest democracy. Indonesia’s economy has also weathered the global turmoil remarkably well.
But for most investors, Indonesia with just a 1% weighting in the MSCI Emerging Markets index, is not even on the radar screen. With our Emerging Markets Country Rotation portfolio strategy, we are able to challenge this conventional index and have Indonesia weighted at 5% though the market is getting a bit pricey.
Indonesia is rich with minerals, metals, oil and has a budding tourism industry. Another relative advantage for Indonesia it is less reliant on exports and its low interest rates and surging consumer confidence is fueling economic growth that is expected to accelerate to 8% per annum by 2011.
While its margin for error is still low, since 2003, government debt as a percentage of GDP has almost been halved to around 30%, while inflation has settled in around 6%, and private investment has risen nearly 20%. Indonesia oil production has declined in recent years due to aging reserves and it formally exited OPEC in 2008, becoming an oil importer, but it ranks second in the world in liquefied natural gas exports and is less reliant on oil exports than in recent years. It also has the third largest amount of coal reserves in the world, ranks first in tin production, and has significant gold, silver, copper, and nickel deposits. On the agriculture side it is a top exporter of palm oil, rubber, wood, tobacco, cocoa, coffee, tea, spices and shrimp.
A new ETF, the Indonesian (NYSEARCA:IDX) Fund, is available as well as the closed-ended alternative, the Indonesian Fund (NYSEMKT:IF). You can expect high volatility with Indonesia with commensurate upside potential
In terms of stock picks for Indonesia, I recently highlighted Indonesian Telecom (NYSE:TLK) in a recent Forbes Asia column.