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The favorite safe havens have been the Swiss franc and Japanese yen. The policy response has encouraged some participants to look for an alternative.

Norway is often seen as an alternative safe haven. It is a large net international creditor and has relatively financial system and robust economy. New oil finds in the North Sea -- plus the national oil company's large stake in new findings in the Gulf of Mexico -- also underscore the fundamental attractiveness of Norway.

Some investors appear to be increasingly looking at alternatives to the Brazilian real, which, while not a safe haven, is also seen as a crowded trade. It has benefited from high nominal rates and commodity exposure. However, the policy response to the BRL's strength and the more general thrust of policy has tempered the earlier enthusiasm and is altering the perceptions of risk/reward.

Indonesia may be an interesting alternative to Brazil, and has much to offer. It has reported solid growth of around 6.5% in the first half of 2011. It enjoys a trade balance, but exports (as a share of GDP) tend to be smaller than other Asian countries, which might offer some insulation from the vagaries of the global economy.

Indonesian inflation was 4.6% year-over-year in July, down from 7.1% in January and thus back within the central bank's 4%-6% target. The appreciation of the rupiah may have helped temper the price pressures and the government has also supplemented the domestic rice supply with imports.

The rupiah has appreciated about 5.2% year-to-date, making it the second-best-performing currency in the region after the Singapore dollar. In the past three months, the rupiah is essentially flat against the dollar, so the trade does not appear crowded with momentum traders.

The 2-year note yields about 5.25%. The five-year bond yields a little more than 6%. The five-year credit default swap is priced around 175 bp. For comparisons, Brazil, Mexico and France are around 163 bp.

The Jakarta stock market has also done relatively well thus far this year. The 3.8% gain in local currency terms is the second-best in the region, behind the Philippines. Over the past month, it has fallen about 6.3%, which is among the smaller declines in the region. Foreign investors have sold about $900 million of Indonesian shares this month, during which foreigners took profits on equities through the region and the world.

The recent market turmoil has helped lift the dollar off the multi-year low set in early Aug near IDR 8460. Technical studies suggest a dollar high is being approached but might not yet be in place. The near-term risk extends to IDR 8600 to IDR 8700, which may offer medium-term real investors a lower-risk opportunity to gain some exposure.

Disclosure: No positions

Source: Indonesia As An Alternative Safe Haven