Monday, February 7, 2011

Irony in Indonesia

Much like India (and to a lesser degree China and Brazil) Indonesia has been hurt by the fact it is growing "too fast".  Last week the country's central bank raised rates for the first time, and overnight we got word that the economy is expanding at a near 7% clip, or the fastest in 6 years.   Unlike the Indian indexes there has been a much better bounce in the Indonesian market from lows of 2 weeks ago, but still quite a ways off highs in December 2010 and very early January 2011.  I continue to be a big fan of this resource rich country, which I think will be hitting the mainstream investment world in the coming few years.

Now that we have had some time to evaluate how iShares MSCI Indonesia (EIDO) versus the older Market Vectors Indonesia (IDX) it appears they are tracking quite similarly, indeed both are priced almost idenitcally as well which is another irony. 

Via Bloomberg:

  • Indonesia's economy grew at the fastest annual pace in six years last quarter, adding to the case for the central bank to raise interest rates further as inflation accelerates.  Gross domestic product increased 6.9% in the three months through December from a year earlier. That was higher than the 6.3% median estimate of 13 economists surveyed by Bloomberg News. GDP increased 6.1% in 2010.
  • Private consumption contributed 2.7% points to GDP growth last year, while investment accounted for about 2% points, the government said. The absence of a harvest led to a 1.4% economic contraction in the final three months of 2010 from the previous quarter. 
  • Rising consumer spending is driving the expansion in the world’s fourth-most populous nation, increasing pressure on the central bank to restrain price gains and protect purchasing power. Indonesia joins counterparts from China to Singapore in reporting accelerating growth in the fourth quarter as Asia weathers risks including elevated U.S. unemployment.
  • “The central bank clearly needs to stay hawkish with the economy growing at this pace and they have to be vigilant on inflation,” said Lim Su Sian, a Singapore-based economist at Royal Bank of Scotland Group Plc.  
  • The Jarkata Composite index had tumbled approximately 8 percent from its Dec. 9 record high on concern the central bank has fallen behind regional peers in boosting rates to cool inflation.
  • “Inflation clearly outweighs growth risks,” Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch, said before the report. “Indonesia’s strong export growth is being supported by surging commodity prices, including on oil and coal prices. We expect growth to remain resilient.”
  • Bank of Indonesia had previously resisted higher rates to avoid attracting more foreign capital inflows, while opting to increase lenders’ reserve requirements and tighten rules on banks’ foreign-exchange holdings to help curb price advances.
  • Consumer-price growth accelerated to a 21-month high of 7.02% in January, from 6.96% in December. (India is about twice as high)  Higher borrowing costs may help anchor inflation expectations and support the rupiah and longer-term bonds, according to Citigroup Inc.
  • President Susilo Bambang Yudhoyono seeks to expand the economy at an annual average rate of 6.6% and create 10.7 million jobs by the end of his second term in 2014, including through attempts to boost investment in the country’s infrastructure.
  • Indian and Indonesian companies last month signed accords worth about $15 billion to build airports, steel plants, a railway line and ports in the Southeast Asian nation. Indonesia will seek bids for 50 new oil and gas blocks in 2011 through tenders and direct offers to help boost output, the Energy and Minerals Resources Ministry said last year.
  • Moody’s Investors Service upgraded the credit rating of Southeast Asia's largest economy on Jan. 17 to the highest level since the 1997 Asian financial crisis, citing the nation’s “economic resilience” and improving public debt position.
  • Indonesia, the third-biggest rice importer in Asia, is seeking to “strengthen” its stockpiles to protect the poor against rising costs, Bayu Krisnamurthi, Deputy Minister of Agriculture, told Bloomberg News on Feb. 4.
  • The government’s target to lift more people out of poverty in a country where the World Bank estimates 29% of the population earn less than $2 a day has boosted consumer spending and imports. The central bank had refrained from raising rates since 2008 to support the growth push.

[May 22, 2009: Indonesia: A Must Own Emerging Market]
[Jul 9, 2009: Indonesia's Star Continues to Rise on Back of Yudhoyono's Re-election]  
[Aug 10, 2009: Indonesia Expands at Fastest Pace in Southeast Asia]
[Jan 22, 2010: - How the BRIC was Born]
[Apr 1, 2010: Indonesian Market Continues to Star in 2010 - Market at All Time Highs as Country Opens Itself Up Further to Foreign Investment]
[Aug 8, 2010: NYT: After Years of Inefficiency, Indonesia Emerges as an Economic Model]
[Oct 9, 2010: [Video]  CNBC's Tim Seymour & Team - The Prospects of Indonesia]
[Jan 11, 2011: BW - The BRIC Debate, Drop Russia, Add Indonesia?]

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