On Oct 2, President Joko Widodo inaugurated the 142km-long high-speed railway between Jakarta and Bandung. First mooted back in 2008, Widodo had pushed for the US$7.3 billion ($9.8 billion) key infrastructure project before his term ends next year.
With the train dubbed “Whoosh”, travelling time between Indonesia’s largest and third-largest cities has been cut from three hours to just 40 minutes. As part of China’s Belt and Road Initiative, this train, built and equipped by China’s state-owned enterprises, is also bringing the world’s fourth-most and second-most populous countries closer.
Indonesia is significant as it represents over 40% of Asean’s population. As the world’s third-largest democracy, it heads into a presidential election next year — a closely-watched event that is already mired in some controversy after Jokowi’s 36-year-old son Gibran Rakabuming Raka became the running mate of the front-runner, defence minister Prabowo Subianto, who ran for the top job but lost to Jokowi twice.
An existing rule requiring candidates to be at least 40 years old was circumvented by the then-chief justice Anwar Usman, who happens to be Jokowi’s brother-in-law. Evidently, the court ruled that Gibran’s experience as mayor of the city of Surakarta is a good enough reason to qualify. Usman has since been demoted.
Yet, in a paradoxical move, Jokowi’s own party PDI-P expelled the president’s son-in-law Bobby Nasution for backing Probowo, who heads the rival Gerindra Party. Meanwhile, Jokowi himself, playing the kingmaker role, has remained mum as the wayang kulit goes on.
Jokowi had assumed his country’s highest office by injecting a breath of fresh air. Unlike his predecessors, he was not from the political elite nor was he from the military, which dominated post-independence politics for decades. He won riding on his people’s touch and his message of change. His last springboard before Merdeka Palace was mayor of Surakarta between 2005 and 2012 — the very same city his son Gibran is now leading before his vice-president candidacy. Presumably, it is all part of a bid to ensure the continuation of his economic agenda and infrastructure projects, which besides the high-speed rail, include the massive undertaking of building a new capital at Nusantara in East Kalimantan, far away from sinking and polluted Jakarta.
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To his credit, Jokowi helped improve the standard of living of his countrymen. Its capital market is gaining domestic strength as the combination of its rich nickel reserves, a key EV raw material, other resources and tax-friendly policies have made it the IPO king of Southeast Asia for a few years.
As the largest Muslim country, Indonesia has not been plagued by radical, sectarian and political challenges unlike Pakistan, the second-largest with 230 million people. The economic opportunities in Singapore’s backyard have not gone unnoticed. In September, when China’s premier Li Qiang took a ride on the high-speed rail, his Indonesian host, senior minister Luhut Binsar Pandjaitan remarked that President Xi Jinping would follow suit — just that no date has been set. Jokowi, on his part, has made his rounds to both Washington and Beijing this year.
Indonesia past and present
The spectre of an unstable giant of a neighbour reared its ugly head during the Asian Financial Crisis (AFC) of 1997. The bitter joke then was that with the rupiah in free fall and rioters on a rampage, the best currency was canned goods and not cash.
Even before the AFC precipitated the end of former President Suharto’s three-decade-long reign, old swashbuckling stockbrokers like Crosby, Templeton and Schroders had their fair share of boom-and-bust stories to tell while other investors including banks were kept on tenterhooks by selective or strategic defaults.
For example, Asia Pulp & Paper’s 2001 US$13.9 billion walkaway was legitimised by Indonesian courts which cancelled its debts. No less painful was Standard Chartered’s multi-year effort to claw back its US$1 billion loan to Borneo Lumbung Energi & Metal — the UK’s bank’s single-largest exposure.
These days — the old haunts where the brokers hang out, including BATS at Jakarta’s Shangri-la — have been replaced by the massive Colosseum field with raves and techno and Blackpink concerts, catering to young, middle-class and digital-enabled consumers willing to spend but who also need to save and invest.
In the mid-2000s, I was at StanChart as part of a team tasked to organise a rescue of local money market funds mired in a liquidity crisis when interest rates surged. Another local bond meltdown happened when large local Indonesian banks and asset managers saw a run on the funds as their NAVs “broke the buck”, creating panic among the long tail of less sophisticated retail investors. As everybody headed for the exit all at once, a fire sale ensued in the corporate bond market regardless of depth and breadth.
During the crisis, good and bad credits were not differentiated. One could buy Astra debt — controlled by the Jardine group — for 40 cents to the dollar. To solve the crisis, we designed fixed maturity plans for investors to roll into and offered them the option of holding the bonds to fixed maturity. In the end, we successfully educated most of the investors to convert to these sensible alternatives so that they got a return instead of taking a loss.
Sour corporate bonds from nearly two decades ago aside, Indonesia’s financial sector has livened up in recent years by a slate of new offerings from players, both existing and new. Bank Mandari’s Livin’ App recently was the largest customer rollout globally of digital banking. Grab Holdings on Nov 9 reported positive adjusted ebitda for the first time in its recent 3Q earnings although its share price is still down 73% since its listing three years ago. Nonetheless, there is a bright spot as its fintech revenue is up 156% y-o-y.
Further growth is expected as its digital bank is starting in Malaysia and Indonesia, which came with the joint backing of Korea’s KakaoBank and Singapore Telecommunications Z74 .
CGS-CIMB Sekuritas Indonesia in May also announced a partnership with B-Money, a financial unit of Bukalapak, to enable stock-trading and investing for the e-commerce platform’s customers at lower costs, strengthening a stock market whose daily turnover that has already overtaken that of Singapore. Over time, a consistent channelling of a larger pool of savings by local institutions and the sheer number of retail investors should result in a more stable and less emerging-market-like Jakarta Stock Exchange.
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For now, the demographics of investors underlying Indonesia’s markets look just like China in the early 2000s — with an added tailwind of technology. From what I heard on my recent trip to Jakarta, it is no wonder that Chinese consumer, fintech and even infrastructure businesses are looking to replicate their models there.
Meanwhile, Bank Mandari is an interesting counter to watch, given its P/E of just 8.8 times. Of course, as the incumbent lender, it is not competing with upstart platform businesses such as Grab, GoTo or Bukalapak. Nonetheless, these various stocks have their respective attractions, providing different opportunities for different risk profiles. The underlying premise, of course, is that Indonesia’s demographic dividend continues to gain and that politics remain stable post-2024.
Grab benefited from tapping the spac boom in the US at its high, notwithstanding the domestic capital market expansion. If the right political narrative could be found, a secondary listing of GoTo and other Indonesian companies in Singapore would help them access global investor capital more readily. Unfortunately, many global funds are constrained by caps on what they can deploy into Indonesia. Without these caps, a secondary listing or even twinning the capital markets more closely would be a win-win for both countries.
Corporate governance conundrum
Soekarno-Hatta International Airport, which first opened in May 1985, has seen its capacity and facilities upgraded many times. The airport’s Terminal 3 is now so huge that it takes forever to walk to immigration. The queues at immigration are longer with more incoming visitors eager to do business or simply enjoy the many malls and well-apportioned hotel rooms in the city centre. Unfortunately, traffic jams still exist and while it may be time for Indonesia to shine from an economic and investment perspective, many things still work on Indonesian time.
If one simply suspends our Singaporean impatience and expectations for efficiency and adapts to local cultural norms, then whether it is traffic or paying for a restaurant bill or a purchase at the Thai-owned Central Mall, where having five people behind a cashier’s counter probably slow things down rather than hastens, Jakarta for me this time was a lot more pleasant.
I have learnt to understand over many visits to Indonesia the need to be more circumspect and to appreciate the country’s size and scale where major decisions need time to deliberate as implications can be huge. While productivity may not be the norm of what Singaporeans are accustomed to, the constant delays in the completion of Jokowi’s flagship projects are, in fact, inflexion points for growth.
Unfortunately, one can still find a Pak Johnny to help you cut the queue for a fee and it is not unusual for the immigration officer to ask for a tip after stamping your passport (please say no). Likewise, one of the impediments limiting risk-seeking fund managers to invest more in Indonesia is its material disclosure rules, which technically allow for three days of potential insider trading before announcements are required. The good news is those who still remember the Bre-X mining scandal in the 1990s where mountains of gold did not exist for the hapless Canadian investors are few and far between. Indonesian families — including APP — had successfully returned to the international debt market by the mid-2010s.
Many have successfully listed some of their businesses in Hong Kong and Singapore in the past. Over at the Singapore Exchange S68 , we have a staple of plantation and real estate counters including Bumitama Agri P8Z , First Resources EB5 , Indofood Agri and Sinarmas Land A26 . Other families that have internationalised through Singapore include Tuan Sing, Bonvests and OUE LJ3 , with assets ranging from consumer to healthcare. Public markets aside, the Royal Golden Eagle group, held privately by the Tanoto family, has its headquarters here.
I am motivated to study on my return to see which local Indonesian-linked companies have business exposure to the growing and changing consumer market. A quote once attributed to Pak Anthoni Salim was that if every Indonesian spends $1 a day on his iconic Indomie instant noodle, that is a top line of $200 million daily. Selling such consumer staples at volumes is remarkable but perhaps the mid-market to high-end segments may be the spot for margins.
I will also put Indonesian ETFs on my watchlist to opportunistically place a small bet should there be a wobble before or after the election. In the meantime, my biggest puzzle is the number of people here, from hotel reception to customer service in malls to restaurant and gym staff who greeted me with sawadikap. Perhaps there is a lot more intra-Asean travel among our economic community and tourism. Or perhaps, somehow, they have figured out my next stop is Bangkok.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange, and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
