For Templeton’s Mobius, Indonesia as Solid as a BRIC

Dion Bisara

When Jim O’Neill, chairman of Goldman Sachs Asset Management, coined the term BRIC ­— Brazil, Russia, India and China — in 2001 to refer to newly developed economies, Indonesia, struggling after the Asian financial crisis and a tumultuous change in leadership, was left off the list.

More than a decade on, having proved its resiliency in the mortgage-driven global crisis of 2008, Indonesia is now right up there with the BRICs as an attractive investment destination.

Such sentiment is echoed by Mark Mobius, executive chairman of Templeton Emerging Markets Group, a unit of Franklin Templeton Investments that manages more than $40 billion in emerging market assets.

“We think Indonesia is one of the markets in Asia with great potential,” Mobius said in an e-mail on Monday.

While economic expansion has been weak in the United States and European countries like Spain face the possibility of slipping back into recession, Asia has been supporting global growth. Indonesia’s 6.5 percent economic growth last year was its fastest since 1996, lifting average per capita income to $3,500 from $3,000 in 2010.

Indonesia is also abundant in natural resources. Among shipped commodities, it is the world’s largest producer of tin, rubber and crude palm oil. It also exports vast amounts of coal, gold, iron ore and natural gas.

The country’s emerging middle class has added to the valuation of some local companies, as their earnings “are helped by strong economic growth, growing consumer demand and government expenditure on infrastructure development,” said Mobius, an emerging market maven who used to pitch Templeton’s funds in television ads asking viewers what was the difference between Slovenia and Slovakia.

“This in turn has led to a positive earnings growth outlook for consumer-related companies,” he said. “Indonesia’s extensive resources and large population put it in a favorable position to attract investments.”

As of the end of December last year, Mobius’s Templeton Emerging Markets Fund had 11 percent of its $1.1 billion in Indonesia, making the country its third-largest holding. Tops were Brazil (19.9 percent) and Russia (13.9 percent), with India (9.5 percent) and China (8.5 percent) at fourth and fifth.

In the $15 billion Templeton Asian Growth Fund, Indonesia accounted for 13.6 percent of the holdings, after China (30.1 percent), Thailand (22.3 percent) and India (15.3 percent).

One of Templeton’s biggest holdings here is Astra International, whose businesses include automotive distribution, logistics, infrastructure, financial services, information technology, mining and energy, and palm oil production.

Astra accounts for 7.1 percent of the Asian Growth Fund and 6.3 percent of the Emerging Markets Fund, making it the biggest single company holding for either fund.

Astra’s share price has risen more than sevenfold in rupiah terms since 2005. Its profit more than tripled to Rp 14.4 trillion ($1.6 billion) in 2010 from Rp 3.7 trillion in 2006, according to Bloomberg data. In the January-September period last year, its net income exceeded Rp 13 trillion. Its shares closed at Rp 71,500 on Thursday.

Mobius is also interested in companies that are strong producers of commodities such as oil, iron ore, aluminum, copper, nickel and platinum. Such commodities, he said, have attractive prospects as emerging countries are busy developing their infrastructure. As emerging markets continue to grow, demand for soft commodities such as sugar, cocoa and select grains has also increased, Mobius said.

“Resource-rich countries like Indonesia are benefiting from increasing global demand,” he said.

“We are finding good opportunities in companies involved in transportation equipment as well as producers of palm oil and mining companies such as coal producers,” he added.

Indonesia’s benchmark stock index rose by 2.2 percent in dollar terms in 2011, while the main measures of the BRIC nations dropped by more than 17 percent, according to Bloomberg data.

Since the start of the year the Jakarta Composite Index has gained 3.5 percent. In the same period, Brazil’s IBOV index, Russia’s RTSI index and India’s Sensex have advanced more than 20 percent. China’s Shanghai Composite Index is up more than 9 percent, Bloomberg data show.

Fauzi Ichsan, an economist with Standard Chartered, agreed with Mobius’s assessment that foreign investors would be attracted to Indonesia’s commodities and publicly traded companies.

But challenges remain in investing in an emerging market such as Indonesia. Fauzi says the country is likely to continue experiencing a reversal of overseas investment in the capital markets until the end of the first half of this year as sovereign debt problems in the euro zone weigh on the global economic outlook.

According to Bank Indonesia deputy governor Halim Alamsyah, portfolio investment — which includes stocks and bonds — in Indonesia totaled $5.8 billion last year, down 56 percent from $13.2 billion in 2010 due to heightened global economic risks.

With risk forecast to continue, he said, the central bank estimates portfolio investment will fall to $3.7 billion this year.

However, 2011’s drop was compensated by more foreign direct investment, which rose 12 percent to $15 billion last year from a year earlier.

Halim estimated that direct investment this year could reach up to $19.2 billion.

As for Goldman Sachs, its asset management group in 2005 started a focus on 11 countries with the largest populations, after the BRICs, that it expects to have a meaningful impact on the global economy. It includes Indonesia.