I recently returned from a trip to Bali, Indonesia. The place felt not too far from home. Amazing culture, good shopping and boatload of activities. Even in such a small place, traffic jams were crazy and traffic woes accentuated by the underpass being built to facilitate smoother traffic flow one day... I grew up in India... all this seemed very familiar.
I dug a little deeper into what is making Indonesia tick and found a lot of things going for it. I am highlighting a few which caught my attention below:
* Indonesia's GDP is around $1 trillion and a debt to GDP ratio is around 26%. (www.en.wikipedia.org/wiki/Indonesia#Economy). The base impact of growth from this level is significant in absolute terms.
* Indonesia is blessed with mother nature's bounty. It is the world's second biggest exporter of LNG, largest exporter of power grade coal, palm oil and has substantial deposits of tin, copper and gold. (http://gcaptain.com/cargos-indonesian-destined-spot/?43399); www.indonesianembassy.org.uk/transmigrat...)
* Major infrastructure projects are in the offing. Most noteable is a bridge linking the islands of Java and Sumatra. This will link 80% of Indonesian population by road and rail when completed, though I must say that it is a long way off. Indonesian government keeps trying but the gridlock in Jakarta during peak traffic hours is horrendous. (www.en.wikipedia.org/wiki/Sunda_Strait_Bridge)
* Indonesia has a population base of around 250m people (www.en.wikipedia.org/wiki/Indonesia#Demographics) and consumer spending accounts for 55% of GDP. As China tries desperately to raise its consumer spending from current 35% levels, a combined exposure to Indonesia, China and India can go a long way to insulate a portfolio from global turmoil.
* The size of Indonesian middle class is estimated to be 30m. To this we add the 250m Indian middle class and half a billion Chinese with purchasing power and we have a very powerful consumption base. (www.thejakartapost.com/news/2010/01/11/i...)
Problems abound as in any region in today's world. Elections are due in 2014, corporate governance is terrible, corruption endemic and implementing economic reforms is chaotic at its best.
I am highlighting a few plays on Indonesia through ETF's:
* IDX * EIDO * IDXJ
IDX : IDX closed at $27.43 on May 22nd against an NAV of $27.78. Indonesian Financial sector makes up 30% of the NAV, energy 15% while nearly 25% of the NAV offers exposure to Indonesian consumer plays. Materials and telecom make up around 11% and 7% of the ETF. Its 3 year return is an impressive 37.58%.
EIDO: An 'ishares' offering on the Indonesian markets, EIDO has a lower asset base ($270m) than IDX ($490m) which could be attributed to the fact that it is a recent offering (May 2010). Consumer plays comprise about 32% of the NAV while financials are 26%. This ETF has a higher exposure to the materials sector at nearly 20%.
IDXJ: IDXJ is tiny at $4.8m and was launched in 2012. It could be volatile and tracks the small cap index in Indonesia. It offers the following broad sectoral breakdown: Financials (40%), Industrials (18%), Consumers (21%) and Energy (16%) and in my opinion might be significantly riskier than the larger ETFs in these uncertain times.
With GDP growth in 6% + range in Indonesia, China and India, it might be worthwhile to look at basket consumer plays in the region. Emerging Asia Consumer ETF by Mirae trades in HK (3054.HK) and the offering by Emerging Global trades as ACON. Given that consumer plays are trading at a significant premiums to the overall markets in Asia after the recent significant market pullbacks, it might be worthwhile to wait for a correction in consumer plays before taking an exposure to these ETFs.
Singapore, May 2012
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.