Credit Suisse GEM Strategy - Indonesia vs BRICs . how high can the premium go?

● Indonesia’s positives – structural ROE and low credit penetration. In our 9 June report, Indonesia – structural growth story, but at what price?, we highlighted two structural positives. One, structural ROE – reflected by ROE troughing at 18.2% in 2008/09’s deep global recession compared with 16% for MSCI China, 15.4% for India, 13.6% for Brazil and 5.5% for Russia. Two, low credit penetration – at 26% of GDP versus 43% for Russia, 59% for Brazil, 64% for India and 131% for China.

● But Indonesia’s P/B versus ROE premium relative to GEM now at 18%. With Indonesia being the best performing GEM market YTD (up 27% in USD), Figure 1 highlights that Indonesia’s P/B versus ROE premium relative to GEM has risen to 18%. This is close to the previous high of 22%. While the highest premiums ever achieved by Brazil was 12% and 24% for Russia, Figures 2 and 3 highlight that premiums versus GEM rose to highs of 38% for India and 36% for MSCI China (we are excluding the high of 68% for MSCI China in late 2007 driven by a special factor – through-train).