The Outlook for 2017
    Category: Outlook 2017 By : Rainer Michael Preis Read : 2055 Date : Tuesday, November 08, 2016 - 14:18:44

    The Jakarta Stock Exchange is the best performing stock market in Asia and the eighth best performing in the world, rising 26% so far this year—and the outlook for next year is becoming more positive. Globally, many investors were underweight emerging markets and overweight developed markets equities for the last few years. This year, however, there has been a shift in investor positioning as many have realized that developed markets are highly indebted and low growth, while emerging markets such as Indonesia are a good long-term investment with relatively low debt and high growth. 

    If you want growth, President Joko “Jokowi” Widodo is your man. Growth is underpinned by Indonesia’s central bank cutting interest rates five times this year and the government’s push for infrastructure and e-commerce. Indonesia revised down its growth forecast for 2017 to the range of 5.3% to 5.9% year on year. The Asian Development Bank forecasts next year’s growth at 5.1%, while the World Bank predicts 5.3% for 2017 and 5.5% for 2018. 

    While these projections are still below Jokowi’s target of 7% growth, it still delights investors in Indonesian equities. The Jakarta Composite Index (JCI) is trading at a current PE of 17.9 and an estimate forward PE for 2017 of 15.2, with a 1.7% dividend yield. The JCI correlation to the S&P 500 Index stands at 0.552, thus attractive diversification for global investors.

    The Indonesian tax amnesty scheme is another boon to the local stock market, and will help add liquidity to market in the first quarter 2017. In addition, the central bank sees companies moving away from bank funding to non-bank sources, including sales of bonds, stocks and rights offers, which would further deepen capital market liquidity throughout 2017.

    In competitiveness rankings, however, things seem to be deteriorating. Indonesia fell four places to rank 41 in the World Economic Forum’s Global Competitiveness Report 2016-2017. In terms of technological readiness, Indonesia currently only ranks 91st. The ICT penetration still remains low as only one-fifth of the population uses the Internet, while there is only one broadband connection for every 100 Indonesians. Therefore, the digital economy is the way of the future.

    Indonesia’s e-commerce market, according to consultancy McKinsey, could be one of the world’s fastest-growing, adding $150 billion a year to GDP by 2025. Online sales could reach 8% of the total retail market by 2020 from currently about 1%. Indonesia’s central bank projects e-commerce transactions will almost double to $4.6 billion this year and could reach $16.4 billion by the end of 2020.

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