Argo Bromo Anggrek, a long-distance passenger train serving Jakarta to Surabaya route. Indonesia’s infrastructural investment is boosting the economy. Source: Wikimedia
A new confidence in Asean’s largest economy is attracting attention with growth that is bucking the downward trends across the continent.
Indonesia’s benchmark index has so far this year gained 4.8 per cent, and 9.7 per cent in dollar terms, taking it among the top 10 global performers. The gains come as East Asian stocks have in general been performing poorly because of fears about China.
Indonesia’s gains follow a turbulent year, when falling commodity prices slowed growth to below 5 per cent in the resource-rich economy and groups struggled with a weak currency. Now it seems President Joko “Jokowi” Widodo has been able to consolidate support for promised financial reforms that could boost growth, say observers.
“People think that stuff is going to get done and that will lift growth,” said David Mann, chief economist for Asia at Standard Chartered. “Across the region, countries that look like they’re getting better at doing what they said they’d do are getting noticed.”
“Indonesia for 2016 could turn out to be the story India was supposed [to be] in 2015,” says Herald van der Linde, an HSBC equity strategist.
The MSCI Asia index, excluding Japan, is down 4 per cent for the year, as are global developed world stocks, compared with a 1-per-cent drop for global emerging markets.
Thailand, up 9 per cent in dollar terms, is another country where investors are increasing their forecasts for growth. Meanwhile, Singapore, which is often used a proxy for Asean’s overall market confidence, is down 1.2 per cent.
Jakarta has recently introduced a series of stimulus packages, cutting bureaucratic hurdles and invested in infrastructural schemes. The major construction projects are creating unskilled jobs, increasing consumer demand.
With four million daily commuters, Jakarta has three transport schemes at various stages of development.
There is the US$1.5-billion underground Jakarta Mass Rapid Transport funded by the city government, with the first line due for completion in 2018.
The US$900-million monorail Jakarta Light Rapid Transport (LRT) is being funded by central government. Then there is the proposed LRT airport link to be funded by private investment.
A 7.3-per-cent rise in public spending boosted growth to just above 5 per cent in the past quarter.
“Everyone is bullish on Indonesia now,” says Jahanzeb Naseer at Credit Suisse. “What has changed since last year is that government spending has improved quite a lot and that’s provided a fillip to growth.”
Harry Su, head of research at Bahana Securities, Indonesia’s brokerage, said: “You need to go mass market as far as tactics go in Indonesia because that’s where Jokowi’s going. Jokowi is heading to provide a lot of support for people in the low end through job creation, through infrastructure projects.”
Among the best performing stocks this year is HM Sampoerna, an affiliate of Philip Morris, which has rose 15 per cent since the beginning of 2016 to Rp105,500 (US$1,569), while Indofood, which produces instant noodles among other popular snacks, has gained 34 per cent to Rp7,350.
