Indonesia climbs towards a Golden future

Every August 17th, Indonesians celebrate independence with parades, a national flag in nearly every doorway and the game of panjat pinang, where contestants climb a greased pole to claim prizes like fridges and sporting gear.


The game of panjat pinang is a feature of Indonesia's national day

It’s an apt metaphor for a vast, complicated country of 17,000 islands, 280 million people and 700 local languages that’s codified a national plan, Golden Indonesia, to climb to developed nation status by 2045. That’s 100 years from their declaration of independence from the Dutch.

That plan, to break Indonesia out of the “middle income trap"¹ and into the first rank of developed nations, aims to grow GDP by 8% a year, invest heavily in a better education system and address a crucial social issue – malnutrition – via a free school meals program expected to reach 82 million people.

Indonesia has already cut the poverty rate by nearly half since 1999. By 2045 it’s aiming to:

• Lift life expectancy by over 10 years

• Increase Gross National Income per person to US$30,000 (that’s ‘high-income country’ status)

• Cut absolute poverty to zero.

Along with policies addressing healthcare, education and nutrition, Jakarta is working to make its stockmarket more investor-friendly and reform government businesses. It’s also encouraging the ‘down streaming’ of commodity production - adding value to a commodity rather than selling the unrefined product. It’s successfully implemented that strategy with nickel in recent years.

The potential of these reform initiatives builds on Indonesia’s already impressive macroeconomic performance. The most recent numbers show annual GDP grew by 5%, inflation was around 2.8% and the ratio of government debt to GDP is around 39%.²  

A Bali high?

According to Cameron Robertson, Portfolio Manager of the Platinum Asia Fund (PAF), these economic fundamentals and the sheer scale of the Indonesian market could make it an attractive destination for investors.
Yet Indonesia is still a small and developing market. Despite being in the world’s top 20 countries by GDP rank, it represents only 2-3% of the MSCI Asia Ex-Japan Index.

As we write (September 2024) nearly 7% of the PAF portfolio is in Indonesian stocks, giving Australian investors a much higher-than-index exposure to Indonesia’s potential. Our Indonesian stocks are not only aligned to the dominant themes in that economy – attractive demographic and economic fundamentals – they also have unique positions in their markets and are attractively priced.

MAP Aktif is a PAF holding. It’s the dominant sporting goods retailer in a country with a young population (the median age is just 29). Over the past five years Map Aktif has averaged sales growth of 18%. Its share price is averaging a 32% annual rise over the same period.³

Pakuwon Jati develops both retail and residential property and is well positioned to ride upwards on Indonesia’s strong demographic and economic fundamentals. Just as importantly, it’s attractively priced. “We can invest in Pakuwon at a valuation of just 10x earnings,” says Cameron Robertson. “To get a similar property exposure in a hotter market like India we’d be paying much more for each dollar of earnings.”

The future doesn’t need to be perfect

Indonesia’s market (the JSX Composite) is up around 12% in the past three months⁴. But that rise may have little to do with Indonesia.  The likelihood of rate cuts has taken the heat out of the US dollar and that typically boosts returns in emerging markets.

Like any emerging market, Indonesia is more exposed to these global trends – their upside and downside - than deeper markets like Australia and Europe. The Golden Indonesia reform process outlined above will not proceed smoothly and may indeed fall short of its glowing ambitions.

Yet even if it falls short of its highest targets, an investment in Indonesia - a large, fast-growing, reform-minded economy - could be rewarding for long-term investors. That's especially true if that allocation to Indonesian assets is part of a diversified portfolio and risks around governance, market and currency volatility are managed via selective and active management.

• For more in-depth information on the Platinum Asia Fund visit our PAF page.

• For more on the growth potential of Asian economies – and the stocks we believe can capitalise on that growth - see our article: Untrapped potential. Why Asia still has room to grow.

• If you’d like to invest in Platinum funds, you can find more information on investing with Platinum here.