Tag Archive | "indonesia economy"

The $ 672 billion roars !

Indonesian stocks are traded by Japanese investors every day, but one recent request from Tokyo was out of the ordinary. A big investor phoned up a local fund manager asking to buy $1bn in equities on the Jakarta stock exchange within just 20 days.

Jakarta is not liquid enough to handle that kind of money. But the anecdote shows the scale of interest that has made it one the world’s best performing stock markets this year.

According to EPFR, a research firm that tracks fund flows, net inflows into equities in the first half of 2010 were $971m. At that rate, net inflows are on track to top last year’s $1.1bn. Much of that came from Japan, which recently upgraded Indonesian government debt to investment grade and is the largest foreign, long-term investor in the nation. With sturdy economic growth, stable politics, low inflation and a consumer market of 240m people, there is an unusual absence of bears questioning Indonesia’s prospects. It seems Asia’s sleeping $672 bn tiger has finally awoken.

“You’ve got a scenario of very sustainable 5.5 per cent to 6 per cent growth, historically low inflation prevailing for some time, a stable currency and bond yields falling to record lows,” says Tim Condon, chief economist for ING Asia. “This is a very attractive climate for investors.”

Indonesian equities are now valued at an average multiple of 17.5 times the consensus of forecast earnings this year and 15 times 2011 profits. That compares with an average multiple for the emerging markets universe of 11.9 times 2010 earnings and 9.9 times next year’s profits. The Jakarta composite index rose 86 per cent in 2009 and is up 19.4 per cent this year. It was a safe haven when most economies slipped into recession, largely because two-thirds of gross domestic product is generated by domestic consumption.

Morgan Stanley warns that the country’s stock market is over-priced compared with India and China or south-east Asian peers. Others analysts say Indonesia is too poor and has too small a middle class to be ranked investment grade.

But Mr Condon says: “In a world of considerable uncertainty, countries that are able to show resilience and some insulation from that uncertainty, like Indonesia has shown, will remain standouts … that will continue into the second half.”

Foreign buying of bonds has driven down the yield on the 10-year government issue to slightly more than 8 per cent this year. EPFR says net inflows into the country’s bond markets have been $2.1bn this year, making Indonesia second only to Mexico among emerging markets in attracting bond investors. Investors are optimistic about the rupiah and sound monetary policies under the first directly elected leader, President Susilo Banbang Yudhoyono. The economic outlook is also robust. Interest rates are expected to remain steady, although a surprise spike in July inflation above 6 per cent could prompt a sooner-than-planned rate hike.

Ito Warsito, president director of Jakarta’s stock exchange, says market capitalisation has more than doubled since the end of 2008 to more than $250bn. His goal is to take public 75 companies and boost the market capitalisation to $300bn by the end of 2012.

“My main focus is market capitalisation,” Mr Warsito says. “The current appreciation of our index and prices also creates a burden, but it is a nice problem for us.”

Investors are looking to buy shares in the natural resources, banks, infrastructure and consumer goods industries. Upcoming IPOs will include miner PT Berau Coal, telecommunications company Tower Bersama Group, Krakatau Steel and the national airline, Garuda.

[via Financial Times]

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Indonesia’s Reason To Smile

Indonesia is now among the top 20 economies in the world (and on the UN Security Council) and its position within the G20 is assured by continuing growth rates. It is overtaking Belgium and Sweden and will very soon overtake Turkey to become the largest Muslim-led economy in the world. It is likely to keep growing and then join the top ten economies in the world sometime between 2020 and 2025.

Indonesia is really on the move despite the huge challenge regarding infrastructure and development. As long as it stays stable, with a strong democracy and gradually improving economic and financial management, then it will stay on track. Its economic results now speak for themselves and the country has much improved economic and financial leadership under the Government of President Susilo Bambang Yudhoyono and its formidable Minister of Finance and Acting Coordinating Minister for Economic Affairs, Sri Mulyani Indrawati.

If Western leaders could see local Indonesian data on banks and business applied to their own countries, with 2008 growth at 6.3 per cent, low non performing loans in the banking system (around 3 per cent ), US$60 billions cash of foreign reserves, US$10 billion invested abroad and US$60 billions of inward investment, then they would be over the moon. Current newspaper headlines in Indonesia point to plenty of good news in this giant archipelagic country, six hours across on a jumbo jet.

Seen from Jakarta, Indonesia, the ups and downs of Wall Street and Main Street in the United States are a long way away and London, Paris and Berlin are not much nearer. But the cold winds of the Western recession are affecting Indonesian export markets and having some negative impacts on the financial system and the real economy. However there is absolutely no chance of a national recession there.

Although many Southern countries will suffer a downturn most are unlikely to go into national recession, if the economic news in Indonesia is anything to go by. Local news headlines are about declining growth in some sectors and additional risks to be managed. But some companies are doing better because of the worldwide downturn and there is an opportunity to focus on strengthening the economic grass roots here while the West takes two years to recover.

Local front page financial news has been dominated by the stock market crash in the first week of August and the ensuing saga, like a trip-roaring novel on high finance and intrigue, of the renowned Indonesian conglomerate, the Bakrie Group. But Bakrieland is not Indonesia. It’s just a part of the picture but not central to the new fundamentals. Indonesia has a self-generating economy sustained 65 per cent by consumption, and a huge and growing number of SMEs, backed by a large +US$100 billion state budget, and a strengthening tax base.

The stock market crash of the Bakrie Group and its Herculean efforts to sell off a 35 per cent stake of the shares in the Bumi Resources coal company, said to be worth US$1.3 billion, but subject to plummeting share prices in the last month, attracted rival offers from Northstar Equity Partners, a US buyer lined up with local Indonesian State Owned Enterprises, versus an offer from San Miguel Corp, the largest food and beverage conglomerate in the Philippines, which also has heavy clout in Asean and global reach.

This story tended to dominate the Indonesian headlines and the trades on the Stock Exchange. But this will not determine the future of the Indonesian economy.What it tells us about fundamentals is of more importance. Indonesia has substantial resources including huge coal reserves. Indonesia needs US$100 billion of private investment over ten years, half of it for energy. If Indonesia is to continue to grow at between 5 and 6 per cent, or to push the growth rate up to 7 per cent after 2010, then what is needed is less focus on the adventures of a few politically connected oligarchic families who previously dominated the economy, along with the State Owned Enterprises, and more focus on strengthening SMEs in the decentralised provinces, right down to community level, to mobilise the coalition that can put Indonesia into the top ten economies in the world.

Pic from Jakarta Daily.

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Indonesia Upgraded

I found this at www.economist.com, one of the most reliable analytical economic magazine on earth. However, Economist.com sometimes lapsed when their forecast eventually was proven wrong. In Q1 2009, Indonesia’s economy grew by 4.4%, which is the 3rd highest in Asia (after China, and India), and GNFI believes Indonesia economy will grow 4.5-5% this year 2009, not 2.4% as Economist.com forecasted. But this is a worth-reading article. Enjoy!

From the Economist Intelligence Unit ViewsWire

A brightening outlook for Indonesia’s economy

Despite the weakness of the global economy, the Economist Intelligence Unit has raised its forecast for Indonesian economic growth. The economy’s performance in the first quarter of 2009, when real GDP grew by 4.4% year on year, was surprisingly strong, mainly owing to the resilience of private consumption. We now expect real GDP to expand by 2.4% this year, compared with a contraction of 1.4% in our previous forecast. We expect growth to accelerate to 3.2% in 2010, up from 0.5% previously.

A number of factors have buoyed private consumption, which accounts for around 60% of GDP. The government’s Rp71.3trn (US$6.9bn) stimulus package, which included cash transfers and higher salaries for civil servants, has supported household expenditure. So too have lower prices for food and fuel, which mean that personal disposable income has not fallen as sharply as expected. Lastly, consumption has been boosted by spending relating to the April legislative election and the upcoming presidential election in July. Private consumption fuelled the first-quarter expansion, rising by 5.8% year on year and contributing 3.4 percentage points to growth.

To be sure, the economy continues to face significant headwinds. Fixed investment, which contributed just 0.8 percentage points to first-quarter growth, will contract this year as domestic firms experience difficulty in accessing capital. Prior to the onset of the global financial crisis, domestic non-financial corporations obtained almost half of their financing from abroad. The Western investors that provided much of this cash are now scrambling to sell assets to pay off their own short-term liabilities, which are becoming increasingly difficult to roll over. As a result, many domestic investment plans are being put on hold or scrapped.

Meanwhile, exporters will have to contend with a sharp contraction in world trade in goods in 2009. After shrinking by 19.1% year on year in the first quarter, the sharpest fall in almost a decade, Indonesia’s merchandise exports will continue to contract sharply in the rest of 2009 owing to lower external demand and weaker prices for most of the commodities that the country sells abroad. In turn, extremely weak export demand will lead firms in the export sector to cut back on investment and lay off workers. However, lower global oil prices, together with a contraction in domestic investment, will suppress the import bill. As a result, we expect the trade surplus to remain stable in 2009.


There are downside risks to our revised forecast. First, the international financial crisis could deepen and have a larger negative impact on global economic growth and capital inflows to Indonesia than we currently expect. Second, although the rupiah has appreciated since mid-March, there is a possibility of renewed exchange-rate weakness. The effect of a full-scale collapse in the rupiah (not our central forecast) on domestic prices would lower the spending power of most Indonesians. A weaker rupiah would also make it more difficult for local corporations to meet their external debt obligations, raising the incidence of bankruptcy. Third, there are also political risks: if deteriorating economic conditions spark social unrest, investment could suffer an even deeper and more protracted decline as investors lose confidence in the country.

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Crisis-proof Nation

Not only only have I been asked by readers, as well as friends, on how Indonesia’s position is in this global economic turmoil. I answered to that question swiftly, “I do not know, dudes!” But, those highly-educated economists in Asian Development Bank (ADB) know it well. I got this from their website. It describes Asian prominent economies comparing last year, this year, and next year.





































South Korea












As we can see, our position is not really bad in this year (I sorted decently only in 2009). For my fellow Indonesians who have been worried about Vietnam: Do not worry, they’ll simply saturate anytime soon.

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