Indonesia is less export and resources
dependent than commonly assumed;
thus, we think its growth is resilient
 Indonesia has oligopolistic markets with
high ROEs that weak infrastructure
helps defend
 Risks are its high valuations and
uncertainty regarding 2014 elections
Myth busting. Indonesia’s growth model differs from those
of other Asian countries. It is less reliant on exports than
commonly assumed, and it is services – not resources – that
actually hold the key to growth. Contrary to popular
misconceptions, labour productivity and growth in services
have been more important drivers of growth than resources
and an expanding workforce.
The upside to traffic congestion. A lack of infrastructure
and high levels of traffic congestion create high entry
barriers to Indonesia’s oligopolistic markets. This keeps
ROE high and cash flows strong.
Capex boom. Domestic companies have put their high cash
levels to use by investing back into their businesses. As a
result, modern retail is growing, creating opportunities for
non-retailers to penetrate Indonesia too.
Indonesia buys Indonesia. Healthcare and pensions
systems are being built. A consultancy argues that the fastest
growing area of consumer spending will be savings and
investment. Expect demand for equities to rise too.
Fund weights are low but rising. Funds are reducing their
UW position in Indonesia. This and high earnings resilience
make us rate Indonesia overweight in an Asian context. But
high valuations suggest upside is limited.
Risks: uncertainty relating to presidential elections and
rising interest rates.
Key Overweight: BCA, Bank Mandiri, Lippo Karawaci,
Tempo Scan.
Key Underweights: Bank Rakyat, Jasa Marga, Sumber
Alfaria Trijaya (Alfamart), Modern Internasional, Astra
Agro Lestari.