Indonesia will likely outperform rest of Asia: analysts
2011-08-09 16:21:45
Indonesia's Jakarta Composite Index is one of just four regional stock indices that has moved up this year - by almost four per cent.
Credit Suisse ranks the Indonesian economy as one of the least vulnerable to a US/euro zone demand shock.
If the auto industry is a proxy for economic growth, then domestic demand in Indonesia has quadrupled in the last decade.
The country is also overtaking Japan as the top Asian importer of wheat, with its increasingly affluent population of almost 200 million.
With a growth forecast of 6 per cent this year and 7 per cent by 2013, Indonesia is proving to be a haven for investors.
Sani Hamid, director of wealth management, Financial Alliance, said: "I think Indonesia itself has a huge potential of being a net exporter of a number of commodities. You will find a lot of liquidity going into Indonesia.
"Recently in the last couple of months, a lot of liquidity has gone into Indonesia in order to gain access to its local bonds, which have very high yields, coupled with the fact that Indonesia's (economy) is strengthening.
"I think there are a lot of gains to be made, so I think Indonesia has potential, and Indonesia is one of the countries we are looking at in the medium term."
Indonesia's real GDP rose 6.5 per cent in the second quarter, more than double its neighbour Thailand's 3 per cent growth in the first quarter; Malaysia's 4.6 per cent and Singapore's contraction in the second quarter.
Analysts say Indonesia will likely outperform the rest of Asia. But despite positive growth and strong domestic consumption, analysts say that red tape still seems to be holding back foreign investment.
Kun Lung Wu, an economist at Credit Suisse, said: "We think it is still a concern. It is changing but very slowly, so let's start from the positive side - Indonesia has come a long way in terms of restructuring its government and banking sector balance sheet so that debt to GDP for the government and external debt to GDP have fallen to the lowest in the region now.
"But there are still a lot of structural issues that the government needs to tackle now. The labour market is still very inflexible, infrastructure is still very poor relative to most other places and economies in the region.
"And (as for) investment to GDP, even though it has been picking up recently, it is still well below those of China and India - the very high growth economies."
Analysts say more reform is needed for Indonesia to realise its growth potential.