Monday, June 15, 2009

Morgan Stanley: Add Indonesia to BRIC

I see Morgan Stanley research is now a regular reader of Fund My Mutual Fund - they now propose Indonesia should be added to the B(razil)R(ussia)I(india)C(china). You heard it here first... ok, second. [May 22, 2009: Guest Post - Indonesia: A Must Own Emerging Market] So perhaps we are looking at IBRIC? Or BRICI?

I've invested over the years (via ETFs) in Singapore, Malaysia, India, Taiwan, and Hong Kong - as the "China will fix all the world's problem's" thesis plays out all these names, (along with resource based countries) have flown higher.

One country I admit to having not looked at until the past few months is Indonesia - when I did a lot of coal research in latter 2007 Indonesia kept coming up so it was on my radar but I never dug deeper. Much like the countries above there are a dearth of US based ways to get involved in the country ... but there is an interesting opportunity here. Little known is despite being a country made up of some 17,000 islands, it is the 4th most populous on Earth. (China, India, US ahead of it) So on "demographics is destiny" alone you have a compelling situation here. What caught my eye of late is while most of the smaller Asian countries I keep an eye out on are falling by double digits in GDP - Indonesia's actually rose.

Via Bloomberg
  • Indonesia’s economic growth may accelerate to 7 percent starting in 2011, providing a case for its inclusion in the so-called BRIC economies along with Brazil, Russia, India and China, Morgan Stanley said.
  • Political stability and buoyant domestic demand will help boost expansion in the $433 billion economy, Morgan Stanley said in a report dated June 12 that compares Indonesia with India. President Susilo Bambang Yudhoyono is expected to win the July 8 elections, polls show.
  • “What this means for the investor community is that they need to look at this asset class more seriously,” Chetan Ahya, a Singapore-based economist at Morgan Stanley, said in an interview today. Political stability, improved government finances and “a natural advantage from demography and commodity resources are likely to unleash Indonesia’s growth potential.”
  • Southeast Asia’s largest economy may grow 60 percent in the next five years to $800 billion due to a stable administration, lower capital costs and a government plan to spend as much as $34 billion to build roads, ports and power plants by 2017.
  • Yudhoyono may win an overall majority in next month’s election, avoiding the need for a second round of voting in September, polls show. Yudhoyono’s Democrat party won more than 25 percent of seats in parliamentary elections this year, becoming the only party to be able to nominate a presidential candidate without seeking outside support. The 2009 parliamentary election results “suggest continued stability in this democratic political framework and is a critical factor in unleashing Indonesia’s growth potential,” Ahya said. “Coincidently, the India story has also recently been given a ‘fillip’ from the strong political mandate of the Congress-led coalition in the 2009 general elections.”
  • The BRICs may overtake the combined $30.2 trillion gross domestic product of the Group of Seven nations by 2027, Jim O’Neill, the London-based Goldman Sachs Group Inc. chief economist who coined the term for the four countries in a 2001 report, has said. That is a decade sooner than he had forecast earlier.

The "emerging markets" theme is a replay of "decoupling" that was a 1st half 2008 thesis - which was that these countries could just continue to roll without major Western economies (or Japan) . That ended very badly. While on a RELATIVE basis some of these countries are doing well, and I think this is the right LONG term thesis, let me again say (broken clock) we seem very crowded on this trade as everyone is now doing it. It's just another extension of the commodity trade and much like commodities, all countries are being bid up together regardless of individual situations. That's "bubble like, lemming" behavior.

The news is not so good everywhere ....
  • June 15 (Bloomberg) -- Singapore’s retail sales fell the most in more than ten years in April as rising unemployment and the nation’s deepest economic slump in more than four decades led consumers to buy fewer cars and household equipment.
  • Singapore’s economy is forecast by the government to shrink as much as 9 percent this year, forcing companies to cut jobs and wages as demand slows.
  • June 15 (Bloomberg) -- Taiwan’s stocks fell, extending the benchmark stock index’s worst weekly performance this year, as investors judged a rally prompted by improved ties with China has overvalued earnings prospects.
  • The index, the world’s worst performer this month, has given up about half the 24 percent gains made since April 29, when Taiwan said it will let mainland Chinese institutional investors apply to invest directly in shares and futures listed on the island’s bourses.
As I stated in my piece [Jun 11, 2009: The Market in ETFs] watch those BRIC countries for any technical faults. China's market started turning before the U.S., so if there is any serious setback coming we'll want to watch these emerging market indexes lead. One conglomerate name popular in the institutional community is below.

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