CLSA INDO: Enter The Komodo

It is time to add Indonesia to the mix of China and India, the future’s growth engine. We first highlighted the investment case behind Chindia in 2006. Now it is time to add Indonesia to the duo. Out of the ashes of 1998, Indonesia has reshaped its political and economic structures, to become the 18th largest economy in the world and the third fastest growing in Asia.

China + India + Indonesia = Chindonesia

Nick Cashmore coined the term Chindonesia earlier this year, making a modest case to link Indonesia with China and India. Wikipedia has now recognized Chindia, we think it is just a matter of time they will add Chindonesia.

In the very long run, the rise of Chindonesia and, in the broader context, Asia represents a restoration of the region’s former pre-eminence in the global economy.

A demographic decline in the developed economies will accelerate the swing to Asia. Peter Drucker referred to demography as “the future that has already happened”. The demographic decline in the developed world is both certain and lasting. For the first time since 1400, Europe is on the brink of a net decline in its workforce. The population of Japan and Russia is already shrinking.

By contrast, in the next decade another 170mn people will join the workforce in Chindonesia. The region is set to reap a rich demographic dividend, boosting its growth and global standing.

CHINDONESIA, KEY POINTS:
Indonesia is the third fastest growing economy in Asia and the 18th largest globally.
It is a globally significant supplier to China and India in resources and, as such, is a leveraged bet on the growth of those two economies.
It has a large domestic economy that has side-stepped the global financial crisis and will grow larger in the decade ahead, reaching 260m people with 60% urbanisation rate.
As a commodity-reliant economy it benefits from efforts by developed world economies to reflate demand through higher commodity prices.
Chindonesia as an economy already generates economic activity equal to 44% of the US economy and within five years, GDP for this group will surpass US$10tn.


Whats the best play? Here is our Chinonesia portfoio:
Domestic demand – Astra, Telkom, Indocement, Bank Mandiri, Pgas
Commodiies - Golden Agri, London Sumatra, Bakrie Plantations, Adaro Energy, ITMG ,United Tractors