"Invest in remarkable Indonesia”. That is the advice of the island-nation’s Investment Coordinating Board in its latest adverts aimed at enticing foreign investors. Perfectly nestled between Asia and Australia’s booming consumer markets, Indonesia presents one of the best money making opportunities of our era. According to the IMF’s estimates, the country’s GDP will grow by an impressive 6.1% this year, despite the terrible global economic circumstance, and that rate will increase to 6.6% in 2013. Nobody knows just quickly this emerging economic giant will grow thereafter, but one thing is for certain; it isn’t slowing down any time soon.
What makes this South Asian country such a special opportunity for investors? Well, regardless of any other factors, the economic fundamentals are stunning. Imagine a nation which is in the early stages of a major an industrial revolution. A few of the most important ingredients for success are favourable demographics, an abundance of natural resources, political stability and a sturdy financial sector. Indonesia, perhaps more than most countries on the planet, has an excellent combination of all these elements, and the boom is still in its infancy.
Indonesia’s demographics will most certainly be helpful in generating and maintaining sustained economic growth. Unlike the rapidly aging populations of the Europe, China and Japan, over 50% of Indonesia’s enormous population are under 30 years of age. In fact, with approximately 240 million people, the country is home to the fourth largest group of producers and consumers on the planet. The strength in numbers, compared to most other major economies, should allow for the countries industrial sector to steady hold its own in years to come. What is more encouraging, however, is the booming middle class which is driving domestic consumption through the roof. Pong Ho Yin, a fund manager at Allianz Global Investors, argues that “Indonesia is being driven by this huge consumption engine… The opportunity that is coming from this phenomenon is going to be enormous”. For him and many other commentators, it is only a matter of time before Indonesia is ranked amongst the BRIC nations and becomes one of the economic powerhouses of the 21st century.
The country’s incredible richness of natural resources further complements both the growing demand for its exports and the increasing rate of domestic consumption. Indonesia is already one of the world’s leading exporters of coal, tin and natural gas. It is also home to the world’s biggest gold mine and the largest known copper reserve both of which have seen demand booms in recent years as China, India and other emerging nations have sought to expand their holdings. In terms of palm oil, which a third of the world’s population uses daily for cooking, Indonesia is already the world’s leading producer. While global commodity prices may remain fairly stable for the time being, demand from the Asian tigers and other consumer nearby markets will continue to drive Indonesia’s mining and agricultural sectors for decades to come.
Political stability is always important when looking for a safe place to put your money. In this regard, Indonesia is a relatively sound bet in comparison to many other emerging markets. A report by Bloomberg recently pointed out that “Indonesia is one of the most politically stable countries in Asia and it deserves more attention from international investors.” Having seemingly put most of the underlying issues to rest, the nation is now united by its predominantly Islamic faith and the majority of its population are strongly in favour of the current, pro-business government. The regime is firmly committed to facilitating business prosperity, improving education and health provisions and, very importantly, tackling the infrastructural problems which have hindered economic activity in recent years. Diplomatic ties with its neighbouring nations in Asia and Oceania- as well as a progressive working relationship with the west, provide solid foundations for smooth participation with the global economy.
At a time when much of the world is feeling some degree of financial distress, Indonesia’s banking and investment sectors are continuing to weather the storm with relative ease. Despite the seemingly never ending fallout of the global financial crisis in 2008, capital markets, financial institutions and lending agencies in Indonesia have gone from strength to strength. According to Jerome Booth, chief strategist at London based Ashmore Investment Management, “Indonesia, in terms of sovereign risk, is better than several Western European countries.” With healthy bank balance sheets and foreign investment rates soaring year on year, the nation’s financial sector is in a strong position to provide a catalyst for future growth.
So it’s clear that Indonesia is a golden opportunity for savvy investors. But where should you put your money? As with any kind of investment activity, deployment of capital depends largely on personal preference. For those who like stocks and ETFs, the Jakarta Composite Index is home to some great small caps with huge growth potential. Whilst the large cap companies are not particularly cheap at the moment, they are still in a strong position to continually increase earnings going forward. Besides the obviously lucrative commodities play, land and real estate are also very enticing. With millions of Indonesians moving to Jakarta and other urban areas every year, property prices will surely see some significant gains. Furthermore, as the country’s magnificent natural beauty continues to reel in millions of new tourists every year, holiday destinations like Bali are thriving. Buying assets in line with these trends would certainly be a good long term strategy.
As Taizo Ishida, lead manager of Matthews Asia Pacific Fund, has stated “Indonesia has long been overlooked by emerging market investors and now there is a lot of value in cheap companies with good growth rates.” So forget China, India, Brazil and the other emerging giants- Indonesia is set to take the financial world by storm over the coming years. With the right approach and an eye for long term growth, strategic investors could make some incredible returns from this exciting newcomer to the emerging market explosion.
