Just when you were wondering what to make of Indonesia, two reports, like buses, turn up at once. Yet the country that put the “easier” in “Chindonesia” is in fact anything but for investors.
That particular language-mangling is only one of many attempts to tie Asia’s disparate markets into a neater proposition. The attraction is the idea that Indonesia, Asia’s fifth-largest economy, will follow China and India with low-cost labour, then a growing middle class. Investment bingo, in other words. Scorecards this week from the International Monetary Fund and the OECD, both of the keep-up-the-good-work variety with a dash of more-to-be-done, chime nicely with growth of more than 6 per cent and Indonesia’s ascension to investment grade last year. But less than $1bn of the $26bn in net equity inflows into Asia outside of Japan have gone to Indonesia this year, HSBC estimates. Why so, if the country is so hot?
Relatively few investment opportunities, for one. Free floats account for only an average two-fifths of the market capitalisation of the top 20 stocks – and four of them have a free float of less than a quarter. Governance is also an issue: Indonesia ranked bottom in CLSA’s survey of Asian markets, scoring half the levels of the top market (Singapore) for rules, enforcement and regulatory environment. And there is the fact that nearly two-fifths of Indonesia’s value-added growth, as measured by the OECD, comes from small and medium-sized businesses – and half of that is from the tiniest groups.