Three Indonesia Investment Options

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 (IDX) Fund, is available as well as the closed-ended alternative, the Indonesian Fund (IF). You can expect high volatility with Indonesia with commensurate upside potential

In terms of stock picks for Indonesia, I recently highlighted Indonesian Telecom (TLK) in a recent Forbes Asia column.

Comments

[Mad Hedge F...:]

nds If you are looking for another emerging market to add to your list of things to buy on dips, then take a look at Indonesia. The world’s largest Muslim country offers a combination that I love, a population with great demographics that is also a major energy and commodities exporter. The archipelago is the biggest country in Southeast Asia and a huge exporter of oil and LPG to Japan on long term contracts. (An old friend of mine torched their Borneo fields at the beginning of WWII, and spent four years in a Japanese prison camp for his troubles.) Other big exports include marvelous textiles, rubber, and increasingly rare tropical hardwoods. The global financial crisis only knocked their growth rate from 6.1% to 4.5%, and now it is back above 6%. No doubt, $63 billion of direct foreign investment into the country helped. A series of tax reforms promise to keep the train moving, cutting the top corporate rate from 30% in 2008 to 28% this year, and 25% next year. Wisdom Tree had the “wisdom” to launch the country’s first ETF (IDX) in January (what timing!), which became one of the best performers this year, rocketing over 300% from the lows to $60. Islamic inspired terrorism is still a lingering concern. I keep Indonesia in the category of highly volatile, high risk, high return frontier markets that you only want to buy on a big dip. Keep it on your radar.

Oct 22 07:57 PM

[Alan Young:]

Most of the news about Indonesia in recent years has been natural disasters: earthquakes, mudslides, tsunamis. It tends to make one a bit anxious about the value of one's investment when large chunks of infrastructure can be wiped out without warning. But it's an improvement over previous decades, when most of the news was about political instability.

Oct 23 11:59 AM

[Graham and ...:]

Indonesia has something like 250 million people. Plus oil, copper, and gold. Those two reasons alone make it a market worth investigating.

Oct 23 12:37 PM