In the past nine months, Indonesia was part of "fragile five" economies that was most vulnerable to quantitative easing policies in the United States. As a member of the "fragile five" economies, analysts thought Indonesia might be heading for another 1997 crisis, where the Indonesian currency fell 70%, GDP declined 14%, and inflation rose 70%. But during that nine month time period, investor sentiment has gone from excessively pessimistic to optimistic in regards to the Indonesian economy. The Indonesian currency fell more than 30%, but it allowed for an opportunity to lower their current-account deficit by making exports cheaper in foreign markets and imports more costly. Currently, interest rates and inflation rates are low setting the Indonesian economy up for potential growth. As it stands, the former "fragile five" economy is one of the world's best markets year-to-date up 23% in US dollar terms. Although, there is opportunity for growth, this is not a sure thing. The risks from a China economic burst and difficulties with a new presidential reform are both under-estimated. Additionally, Indonesia is trading at 15x this year's earning, a 32% premium to Asia (minus Japan). In order to lower the risk of a foreign long-term investment , I might be better suited to find a better value in South Korea that is trading at approximately half (8x earnings) of Indonesia's valuation.
http://www.forbes.com/sites/jamesgruber/2014/03/23/investors-fall-for-indonesia/
1 comment:
As I noted above with Turkey, Indonesia's best bet is probably to reduce its reliance on exports of raw materials. It can focus instead on cheap labor, as many developing economies do.
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