The Undiscovered Market – Indonesia

One thing is fixed despite risks: Indonesia is an interesting market for many companies and investors. Due to the strong internal market, the country is one of the best positioned markets, says Maarten-Jan Bakkum of ING Investment Management.

Other experts say that Indonesia must be called in one breath with China, India, Russia and Brazil. Indonesia belongs to the investment world must speak of BRIIC in the future.

This is a word that should describe the close link between China, India and Indonesia. Together, the three countries reach a share of 40 percent of the world’s population.

When it comes to the Far East, fund managers are swarming. China and India-investors would have to create their money there, the future lies there, it says. It often forgets a country in Southeast Asia, which has lasted the biggest profits to investors: Indonesia.

Hardly any stock market in the world has developed in recent years as much as the one in Jakarta. The financial crisis did not pass without a trace on the stock exchange, but now it shows strength again.

In view of five years, the Jakarta Composite Index can have an increase of 157 percent. Thus, it stands better than most other trading places in the region, than the established stock exchanges in Europe anyway. For comparison, the DAX won about 35 percent in the same period.

In Indonesia alone, the country with the fourth largest population in the world, 230 million people live, about three times as many as in Germany. By the year 2050, the number will rise to just under 290 million, according to United Nations estimates. Unlike China, Indonesia has a very young population and Indonesia business opportunity is very huge. In the long term an invaluable advantage, say the experts of ING Investment Management. Demographic change is clearly speaking for Indonesia.

Leading Economy Index

Historically, the market barometer of the Indonesian stock exchange, the Jakarta Composite index, sums up the most important companies in the country, it contains a total of 402 shares. The stock index can be traced back to the year 1982.

National Indonesia has a comparatively strong internal market. The other side of the coin: Indonesian companies are less globally positioned and therefore less well known internationally. The largest listed companies are Astra International. This is a broadly diversified group that supplies the automotive industry, among other things. Other heavyweights in the index are the food and consumer goods group Unilever Indonesia and Telkom Indonesia, a former monopoly in the telecom sector.

Why funds are the better investment

Private investors should not put their money directly into Indonesian equities anyway-that is too risky. Only those who have very good market knowledge should venture this step.

Funds are usually the better, because somewhat safer variant. The few products currently on the market are investing not only in Indonesian equities, but also in the securities of international corporations, which are strongly represented in Indonesia. This reduces the investment risks.

The largest is the Fidelity Indonesia Fund with a volume of currently around 640 million dollars. Allianz RCM Indonesia Fund and Fortis Equity Indonesia are significantly smaller. In addition, there are still numerous emerging-market funds in which the country of the 15 000 islands is represented in a proportional form-and individual index certificates.