The biggest invisible object on Earth
When searching the web for “the biggest invisible object on Earth” one mostly gets a rather surprising result: Indonesia. Surprising because of the sheer size of the country (the Earth’s 15th largest), the population (the Earth’s 4th largest), and the economy (the Earth’s 16th largest). And yet, despite all that, it is a fact that also Indonesia’s equity market remains equally invisible for global investors.
But this may soon change.
Foreign direct investors are already noticing the country’s potential. Indonesia is already among the top 10 destinations for Chinese FDI, while US multinationals are catching up and have ranked as the 4th largest foreign direct investor in Q1 24, ahead of 5th ranking Japan. FDI in local currency has roughly doubled over the last 2 years.
Last month, Microsoft has announced an investment in Indonesia’s digital infrastructure, while only last week it was Elon Musk’s turn as he launched in Bali SpaceX’s satellite internet service for the country’s health sector.
Indonesia is admittedly still a niche, off-radar, equity market, but we are confident that stock investors will soon follow business investors and start buying the country’s deeply undervalued public equities. Mainly small caps, which are currently trading at less than 7x earnings (vs the almost 23x of their Indian peers!) and are likely to benefit from the Government’s ongoing and massive infrastructure investment programme. The current disconnect between stock and business investors is unlikely to last.
As deep value investors we are generally happy to buy an asset as soon as we see an attractive yield, without the need to wait for a catalyst – which often remains invisible until it’s too late. And in fact, we see that attractive return for Indonesian stocks already today. Having said that, we do anticipate at least 3 possible catalysts:
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Satya Nadella and Elon Musk’s investments are just two high-profile examples of what could follow in terms of FDI news-flow, something which could help put Indonesia on stock investors’ radars, especially as the country benefits from industrial re-shoring out of China and from the world’s appetite for Indonesian natural resources.
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Declining US inflation and interest rates (if they were to remain on a downward path) should also benefit Indonesia, along with its EM peers.:
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An increasingly expensive equity market in India and the fear of a possible correction or crash could gradually or suddenly convince investors to switch into cheaper Indonesia.:
Indonesia doesn’t deserve to remain invisible, and we are confident it won’t stay so for much longer. See here for details about our unique Indonesian niche fund.
This is a marketing communication intended exclusively for institutional investors. Refer to the Fund Prospectus & KID before making any investment decision.
For any questions email us on: info@nicheam.com
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