atans1

The case for Indonesia: incompetency notwithstanding

In Indonesia on 22/10/2010 at 5:39 am

I’m sure we are all upset that the #$%^ Indons are at it again: promising yr after yr to control forest fires while doing nothing. And there are riots

But as FT’s Lex reports today To say that Indonesia has outperformed would be an understatement. A thousand dollars invested in the MSCI Asia ex-Japan index 10 years ago would be worth about $3,600 now, with dividends reinvested. The same sum invested in the Jakarta Composite would have grown to almost $13,000. $=US$

Indonesia’s core investment case remains compelling. Bigger than Brazil in population, and with a fractionally younger median age, Indonesia resembles India in the composition of its growth: powered not by net exports – just 1 per cent of gross domestic product in the first half – but by consumption and fixed capital formation. As it had no demand shock from which to recover, Indonesia may be one of a handful of regional economies to see gross domestic product growth accelerate next year.

True Foreigners sold a net $148m of Indonesian stocks on Tuesday, the biggest net sale in eight months, as police prepared the razor wire.

But even at near-record high valuations – Jakarta’s price/book ratio of 3.5 times is not far from the 3.8 it hit almost three years ago – this remains a tough market to underweight. Oligopolies in the consumer, financial, utility and resources sectors mean that aggregate returns on equity are Asia’s highest.  They will almost certainly be back.

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