Under “Jokowinomics,” Indonesia is a bright investment spot
    Category: Column By : Rainer Michael Preis Read : 2015 Date : Sunday, April 10, 2016 - 07:05:27

    While China is facing a hard landing and Western economies are adopting negative interest rates and unconventional monetary stimulus, the fundamental investment case for Indonesia is growing. The Jakarta Composite Index has risen 11% to become the best performing Asian market and the seventh best performing stock market in the world so far this year.

    The JCI is trading at a forward PE of 14, and a current PE of 16.6, slightly above its long-term average PE of 14—implying investor confidence that earnings will catch up to prices. The MSCI Indonesia Consumer Staple Index has risen 18% and is now the largest industry group by weighting in the JCI Index and the best performing sector. The Indonesian rupiah is the sixth best performing currency globally against the U.S. dollar as foreign funds have pumped $2.7 billion into rupiah sovereign bonds and stocks this year.

    The rupiah’s strengthening allows the central bank to build up its foreign-exchange reserves. As Joko “Jokowi” Widodo’s government opens up more of the economy for international investment, it entices not only global investors but also Indonesian money parked offshore. Indonesia is now becoming a global bright spot for investment, given the country’s high interest rates (and thus ample room to lower them) coupled with “Jokowinomics.”

    This is especially true at a time when Chinese equity markets are down 26% year-to-date and India, after the initial “Modi-boom,” is now feeling reform fatigue and the Sensex Index has fallen 6%. Jokowi started slow but steady to prepare the ground for unleashing Indonesia. While many countries have run out of effective stimulus, Indonesia under Jokowi is now in the enviable position to enact large-scale fiscal stimulus packages. A historically low 4% inflation rate gives ample space to cut interest rates.

    While initially slow, the government has now sped up disbursement, and these funds are stimulating growth. New confidence in the Jokowi administration is now attracting global investors, who are voting with their money. Even the risk of a potential hard landing in China, while hard on neighboring Singapore, would probably have little impact on Indonesia (except in commodity prices), because of the momentum generated by Indonesia’s large, and growing, domestic economy, now tipping the scales at over $1 trillion.

    These factors, coupled with the introduction of CRS (Common Reporting Standards) and tax amnesty, are prompting capital flows out of low yielding Singapore assets into higher yielding Indonesian assets. Indonesian banking and consumer stocks look attractive at current valuations. The IDX also has a pipeline of 35 IPOs this year, and has floated the possibility of introducing REITs (Real Estate Investment Trusts) and “start-up” market modeled after Nasdaq. Good things take time to develop but when done, they are considered great accomplishments. With “Jokowinomics” now firmly in place, the trend is indeed your friend on the Jakarta Stock Exchange.



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