Indonesia: a haven from turbulence

Indonesia’s large domestic economy should shield it from Trump-generated turbulence.

President Trump's protectionist sabre-rattling has unnerved emerging-market investors. Developing countries tend to be more trade-dependent than the industrialised world, so trade barriers would hurt them more. This is why investors are increasingly eyeing up emerging markets with large domestic economies that shield them from the turbulence, says Assif Shameen in Barron's.

Enter Indonesia, where exports account for only a fifth of overall output, and a 250-million-strong population underpins a large domestic market. More broadly, "there's a sense it's all coming together", as Centennnial Asia's Manu Bhaskaran told Barron's. President Joko Widodo has made slow but steady progress on structural reforms since his election in 2014.

A reduction in fuel subsidies and a tax amnesty programme which brought in 10% of total tax revenues in 2016 has freed up billions to spend on infrastructure. Reducing red tape has also been a priority, notes Qingzhewn Chen on, while foreign ownership rules have been liberalised, stimulating investment. Indonesia jumped from 106th to 91st in the World Bank's Ease of Doing Business Index for 2017.

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The current macroeconomic backdrop also looks positive, with inflation under control at 3% and credit growth set to expand by 10%-12% this year; that will bolster consumption and help GDP expand by around 5.4% this year. The prices of some of Indonesia's key commodity exports, such as coal and palm oil, have risen of late.

The long-term fundamentals "look incredibly compelling too", says Mark Cudmore on Indonesia has "superb demographics": less than 9% of the population is older than 65. So there is scope for current growth rates to endure for years. The Aberdeen Indonesia Fund (NYSE: IF) is on a 15% discount to net asset value.

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.