Imagine a country that will move its capital to another island due to rising water levels, has the fourth largest population in the world, the most beautiful beaches as an established tourist destination, a young population with an average age of 30 years and one of the lowest inflation rates in the world.
You guessed it right – we are talking about Indonesia!
The country has a stable political framework and popular president Joko Widodo amicably called „Jokowi“ by fellow Indonesians made his country an investor´s darling.
Indonesia has the world´s largest nickel and bauxit reserves, both critical for the electrification of the world and the country is reducing its dependency on palm oil and coal exports by investing strongly in higher value-added industries from cars to electronics.
Together with India and Vietnam it will be one of the beneficiaries with western economies reducing economic exposure towards China.
The Bank of Indonesia estimates GDP growth rates for Indonesia of 4.7-5.5 % in 2024 compared to worldwide GDP growth rates of 2.9% according to OECD.
How can we as individual investors get access to Indonesia and benefit from the improving economic outlook?
The best and cheapest way is to invest via ETFs. Currently there are only three ETFs which are tradable in Europe that track the MSCI Indonesia stock index and one ETF that tracks the VanEck/MVIS Indonesia index.
The iShares Indonesia index ETF can only be traded in the Americas.
The small number of ETFs shows that Indonesia is not yet on the radar list of global investors hence offering good opportunities for long term investors that want to get exposed to the Indonesian economy.
|Issuer||Volume||Total Expense Ratio|
|HSBC||USD 78m||0.50 %|
|Lyxor||USD 42m||0.45 %|
|Xtrackers||USD 54m||0.65 %|
The first three ETFs are tracking the MSCI Indonesia stock index and are thus very comparable. The cheapest ETF in terms of TER is the Lyxor Indonesia ETF.The asset volumes invested for the five mentioned ETFs are currently very modest ranging between 32m to 535m USD again indicating that international investors have yet to discover Indonesia as a growing and emerging economy that will be more interwoven with the global world.
We estimate that over the next 10 years there will be more ETFs launched with special focus on Indonesia and total ETF volume should surge to at least 5 bn USD.
In addition to index tracking ETFs there are also actively managed funds that invest in Indonesian stocks:
|Issuer||Volume||Total Expense Ratio|
|Allianz Indonesia Equity Fund||40m USD||2,29%|
|Fidelity Fund Indonesia||245m USD||1.95%|
Indonesia‘stock market has enormous potential to grow. Just remember that there are only 21 companies that have a market capitalisation of more than 5bn USD each.
Another interesting fact is that in 2022 when world stock markets were collapsing one of the largest IPOs was GoTo Gojek which listed in 2022 and was able to raise 1.1bn USD, a significant number for that year , being the fifth largest IPO in 2022 worldwide.
In 2023, in a lacklustre worldwide IPO environment, again an Indonesian company was among the largest IPOs.
Harita Nickel, a leading nickel producer managed to raise USD 660m while according to Dealogic Amman Mineral is likely to soak in 1 bn USD of fresh money with its IPO later this year.
Let’s have look into the business model of the major companies included in the Indonesia MSCI Index
1. Bank Central Asia (BCA) is Indonesia’s largest bank by market capitalization. BCA’s strengths include its strong balance sheet, stable deposit base, and efficient operations. However, the bank is facing increasing competition in the digital banking space, which may impact its profitability. The market capitalisation as of July 14, 2023 is 75bn USD
2. Bank Rakyat Indonesia (BRI) is Indonesia’s second-largest bank by market capitalization. BRI’s strength lies in its focus on providing banking services to micro, small, and medium-sized enterprises. However, the bank is facing challenges in terms of managing credit risk and maintaining asset quality. The market capitalisation as of July 14, 2023 is 56bn USD
3. Bayan Resources is a producer of low-sulfur sub-bituminous and bituminous coal. Bayan is engaged in wholesale trade, mining and excavation services, and transportation and warehousing businesses. Bayan trades solid, liquid and gas fuel and relevant products, such as natural petroleum, petroleum, diesel fuel, gasoline, oil fuel, kerosene, coal, timber fuel, naphtha, and other fuel, including natural gas fuel, such as liquefied petroleum gas (LPG), butane and propane gas. The market capitalisation as of July 14, 2023 is 44bn USD
4. Bank Mandiri is Indonesia’s third-largest bank by market capitalization. Bank Mandiri’s strengths include its extensive network of branches and ATMs, strong asset quality, and diverse product offerings. However, the bank is also facing increasing competition from digital banking providers and may need to continue to innovate to remain competitive. The market capitalisation as of July 14, 2023 is 34bn USD
5. Astra International is a diversified conglomerate with businesses in automotive, financial services, heavy equipment, mining, and agribusiness. Astra’s strengths include its extensive network of dealerships and distribution channels and strong brand reputation. However, the company may be vulnerable to changes in global commodity prices and need to continue to invest in new technologies to remain competitive. The market capitalisation as of July 14, 2023 is 18bn USD
6. Bank Negara Indonesia (BNI) is Indonesia’s fourth-largest bank by market capitalization. BNI’s strengths include its focus on digital banking and its growing customer base. However, the bank may face challenges in maintaining profitability in a crowded banking market and may need to continue to innovate to remain competitive. The market capitalisation as of July 14, 2023 is 11bn USD
7. Merdeka Copper Gold is a mining company that produces gold and copper ores. Merdeka’s strengths include its strong cash position, high-grade ore deposits, and experienced management team. However, the company may be vulnerable to changes in commodity prices and regulatory changes in the mining industry. The market capitalisation as of July 14, 2023 is 5bn USD
8. United Tractors is a heavy equipment distributor and rental company. United Tractors‘ strengths include its extensive network of dealerships and strong relationships with leading global heavy equipment manufacturers. The market capitalisation as of July 14, 2023 is 6bn USD
Besides the companies we have featured above here is also a small peek-view into the leading families and richest persons in Indonesia and their source of wealth:
1. Robert Budi Hartono – His net worth is estimated to be about $17 billion in 2021. Hartono and his brother Michael are the owners of Djarum, a clove cigarette (kretek) company.
2. Eka Tjipta Widjaja – His net worth is estimated to be about $15.7 billion in 2021. Widjaja is the founder of Sinar Mas Group, an Indonesian conglomerate with interests in pulp and paper, real estate, financial services, and agribusiness.
3. Susilo Wonowidjojo – His net worth is estimated to be about $4.6 billion in 2021. Wonowidjojo is the owner of Gudang Garam, another kretek cigarette company.
4. Sri Prakash Lohia – His net worth is estimated to be about $4.1 billion in 2021. Lohia is the owner of Indorama Ventures, a petrochemical company.
5. Low Tuck Kwong – His net worth is estimated to be about $3.3 billion in 2022. Low is the founder and owner of Bayan Resources, a coal mining company.
To sum it up: Indonesia has proven itself as a reliable economic partner in a worldwide context.
A multi-ethnic country consisting of more than 17000 islands and which plans to position itself among the top five economies in the year 2045 when it will celebrate the centenary of its founding as a republic.
Currently half of the population live in the island of Java but the government is planning to expand economic growth to other islands. One of the main projects is to move the current capital Jakarta in Java to the island of Borneo where the new capital Nusantara will be erected.
The Indonesian economy will grow strongly over the next decades and the above mentioned ETFs offer a good way to participate in the upwards trajectory for investors that have a long term investment horizon.