Nick Cashmore has just written a presentation on Indonesian market. The title is “Time to take a fresh look”.
Indonesia has been off the investors’ radar screen for a long time. The country weighting in MSCI Asia ex-Japan is only 2%. Compare this to Taiwan’s 17% weighting in MSCI Asia ex-Japan. This is despite Indo’s GDP (US$498bn) is some 50% bigger than Taiwan’s (US$334bn) at current exchange rates. In 2006, Taiwan and Indonesia’s nominal GDPs in US$ term were about equal.
Why is Indonesia still off most investors’ radar screen despite the recent progress?
Just 10 years ago, Indonesia was associated with political chaos. However, in the last decade Indonesia has embarked on one of the most ambitious political and economic transitions. And it has been a reform and democratic success story. We also think that, unlike Taiwan, what we don’t have is a long list of expats who studied here with good memories and knowledge of the place. Indonesia is still massively underrated, in our view. Indonesia is under-owned and overlooked. This means opportunity for investors who are willing to look at the market. Does a strong macro case with reasonable valuations sound appealing to you? If yes, then Indonesia is a place that you want to consider.
Key points from the report:
Interesting macro backdrop: domestic demand driven economy, exports make up only 26%.
It is more about China than about US. Last year, Indo’s exports to China overtook trade with the US. Two thirds of Indo exports are commodity-related.
Compared to the west, Asians are unleveraged and Indonesia is Asia’s least-leverage economy.
Indo is the lowest cost marginal supplier of palm oil and thermal coal.
Infrastructure: good traction. Toll road networks to triple in 5 years, 80% of the first 10GW of power plants are under construction.
Demographics: every 10 years, the workforce increases by 23mn people, the population of Malaysia.
Monetary policy: restoring credibility. Bank Indonesia is stabilizing the monetary base.
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