Kevin Grewal: As many investors seek to find the next emerging opportunity, the Asian nation of Indonesia may be the answer to their prayers.
According to Liem Denning of the Wall Street Journal, Indonesia is the next Brazil, which was the best performing BRIC nation over the past five years and is ripe for exponential growth. A major driver behind Indonesia’s appeal is the fact that it is flush with natural resources. The Southeast Asian nation is the world’s largest exporter of thermal coal and palm oil and has an ample supply of crude oil, natural gas, tin, copper and gold.
Furthermore, the nation of islands is a member of OPEC but doesn’t export oil, instead using its oil production to turn the wheels of its own economy. By doing so, Indonesia shuns itself from the volatility of crude oil and the potential imbalances in supply and demand of the commodity which could cripple a growing economy. Another perk of being a commodity powerhouse (i.e. palm oil) is that the nation has the ability to increase food production as its population becomes wealthier, which helps mitigate the effects of inflation and dependency on other nations.
A second reason to watch Indonesia is its labor force. The nation is abundant with young, intelligent workers who are willing to work for lower wages than their other Asian counterparties. In fact, the World Bank estimates that Indonesia’s working population will peak in 2040 as compared to China’s, which is expected to peak sometime this decade.
A third reason to consider Indonesia is its domestic sector. Consumer spending constitutes nearly 65 percent of Indonesia’s GDP and the nation’s per capita GDP in purchasing-power parity terms is expected to increase by more than 6 percent annually over the next five years. As purchasing power increases, spending on non-discretionary items tend to follow, which will likely provide positive support to the nation’s GDP.
Lastly, Indonesian stocks appear to be relatively cheap as compared to counterparties. Currently, Indonesian stocks are trading at roughly 12.5 times earnings as compared to nearly 20.1 times for India’s Nifty Index and more than 13 times for the Bovespa Index.
From an investor’s standpoint some easy ways to gain access to Indonesia include:
- iShares MSCI Indonesia Investable Market Index Fund (NYSE:EIDO)
- Market Vectors Indonesia Index ETF (NYSE:IDX)
Written By Kevin Grewal From ETF Tutor Disclosure: No Positions
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.