Indonesia, Getting Hotter By The Day

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Four Pillars of GDP: Driven by private consumption

While the title of this article could genuinely be referring to global warming, and not incorrectly, in this case it’s meant to reflect the continuing success with which the country’s market is performing.

Return-on-equity is still the highest among its Asian neighbors, and the nation’s GDP is growing at a healthy 5% clip thanks to private consumption and investment.

Government consumption was a slight drag in the latest round, but this isn’t expected to last. The current government has set big plans for infrastructure and energy investments.

Highest ROE in Asia

Analysts expect Indonesia to deliver the highest ROE in Asia in 2017. In fact, ROE is expected to be above 16% through 2019.

This high profitability is reflected in the current year’s 2.7x price-to-book value.


A. Stotz Four Elements: Indonesia’s rank relative to Asia

Overall, Indonesia is the second most attractive in Asia considering all our four elements: Fundamentals, Valuation, Momentum and Risk.

Fundamentals: Indonesia has the best ROE in Asia with 2017 consensus estimates of 16.1%.

Valuation: With high profitability comes a rich PB valuation.

Momentum: High EPS growth and moderate price momentum.

Risk: Low beta to Asia ex-Japan.

Strong performance in Information Technology and Materials

Top 3 largest sectors: Financials: 27% of the market; Consumer Staples: 24%; Consumer Discretionary: 12%.

Best sector & stock: Information Technology: +64.5%; Indoritel Makmur Internasional Tbk PT: +84.3%.

Worst sector & stock: Utilities: -12.6%; Perusahaan Gas Negara (Persero) Tbk PT: -14.0%.

*CE is consensus estimates

Article by Dr. Andrew Stotz, Become A Better Investor