Australian Perspective: Investment opportunities on our doorstep

Indonesian BEI Index,BusinessEconomy,IDX,Indonesia Shares,Indonesia Stock Market,International Investing in Indonesia is starting to look just as attractive as China and India, writes John Collett. While everyone knows about the merits of investing in China and India, Indonesia barely rates a mention. But fund managers who specialise in Asian shares say the archipelago presents investment opportunities every bit as good as China and India over the long term. With more than 240 million people, Indonesia is the world's fourth-most populous country. Like India and China, it has a rapidly growing middle class. Its economy may only be half the size of Australia's but it is growing at almost 7 per cent a year. "The long-term prospects for Indonesia are extremely good," says Kerry Series, the chief investment officer at Eight Investment Partners, which runs the 8IP Asia Pacific Partners Fund. "There are a number of really interesting companies in Indonesia and some of the consumer stocks, in particular, are really good-quality companies." An example is Ace Hardware, which is listed in Indonesia and is a franchise of a US company. Ace Hardware sells everything from outdoor furniture to power tools. Series says the "return on equity" (a measure of profitability favoured by fund managers) of the companies that make up Indonesia's sharemarket index is more than 20 per cent. No other country in Asia has such high profitability, he says. Robin Parbrook, who manages the Schroder Asia Pacific Fund from Hong Kong, prefers Indonesia to China and India. "Even though Indonesia has slower economic growth than China, it has a much better stockmarket," he says. Many Chinese companies are majority government-owned and there is a lot of investor money chasing Chinese stocks. Parbrook says the current worries with India include the high valuations of Indian shares, rising inflation and a "lot of hot money" that went into India last year. There is no doubt that Indonesian shares are more expensive than their historical averages following that sharemarket's massive gains over the past two years. In 2009, the Indonesian sharemarket rose more than 85 per cent, in US dollar terms, after it fell sharply during the GFC. In 2010, it rose more than 45 per cent but it has been trading sideways since the start of this year. Parbrook says Indonesian shares are not that expensive. The sharemarket has historically traded at big discounts to the region because of corruption and after the country experienced the problem of the east Asian financial crisis. "Indonesia has a lot of potential and it is one of our key overweights in the fund," says Ragu Sivanesarajah, who helps run AMP Capital Investors' Asia Equity Growth Fund. The fund has about 6 per cent of its money invested in Indonesian-listed shares - large relative to the small size of its sharemarket. Sivanesarajah, a senior portfolio manager with the Asian equities team, says there is no reason why Indonesia's good economic growth rates should not continue. Eng-Teck Tan, the investment manager of the TAAM New Asia Fund, based in Singapore, says his fund sold all its Indonesian shares - to take profits - in October last year. "There is no doubt that it is very easy to fall in love with Indonesia," he says. "There's its huge population and it is resources rich but the market has run ahead of itself in the short term."


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