Indonesia is one of the world’s best emerging markets this year as global equity investors enter a market that supports exports of goods and a huge domestic consumer base.

The MSCI Indonesia index rose about 12% in dollar terms this year to Thursday, while the broader component for developing countries fell 14%, according to Refinitiv.

Meanwhile, flows from foreign institutional investors in stocks in Southeast Asia reached $ 5 billion from January to April, according to Goldman Sachs. This is almost twice the total in 2021 and contrasts with the outflow to developing countries of $ 47.8 billion.

This year, global stocks and bonds have been under siege by a number of issues, including the Russian-Ukrainian war, rapid inflation, tough closures in China and the transition of the Federal Reserve and other central banks to tougher monetary policies.

Emerging markets that have achieved higher rates tend to be significantly affected by commodities and banks, said Herald van der Linde, head of HSBC’s Asian stock strategy..

“In Indonesia, they are both,” he said.

Indonesia is the world’s largest exporter of coal and a producer of other key commodities such as oil, gas, nickel and palm oil. This benefited from rising commodity prices, and investors bet on shares of mining and material companies.

Shares of coal company PT Adaro Energy Tbk, for example, have risen almost 50% this year. The subsidiary of PT Adaro Minerals Indonesia Tbk has grown since it went public in January and its shares are now worth 27 times more than their initial public offering. Adaro Minerals mines and sells coke coal, which is used to produce iron and steel. Indonesian markets will reopen on Monday after closing on the holidays from April 29th.

Indonesia and other Southeast Asian markets, such as Malaysia, are benefiting from “several factors, including optimism about resuming opening in the region, as well as support from deepening each country’s domestic investor base,” said Vijay Vaidyanathan. head of world capital. markets for Southeast Asia at Morgan Stanley.

Mr Vaidyanathan added that these indices were more weighted against the value of stocks – or stocks traded at modest estimates compared to indicators such as earnings or book value – rather than stock growth.

Shares of Indonesian banks also rose. They make up most of the MSCI index and local equivalents such as Jakarta’s IDX composite index.

Shares of PT Bank Central Asia Tbk, Indonesia’s largest company by market value, rose 11% this year, while shares of state-backed financial lender PT Bank Rakyat Indonesia (Persero) Tbk rose 18%.

Investors expect higher interest rates to allow banks to pay more loans, and expect the economy to recover as Indonesia eases restrictions on Covid-19, said Mr van der Linde of HSBC. “As the economy grows, banks will be able to do more business,” he said.

The Asian Development Bank predicts that Indonesia’s gross domestic product will grow by 5% this year compared to GDP growth of 3.7% last year. Indonesia’s central bank has not started raising policy rates, but market interest rates have risen, with yields on one-year government bonds rising from less than 3.7% late last year to nearly 4.4%, according to Refinitiv.

Indonesia has been relieved of some of the challenges facing China or its more tourism-dependent neighbors in Southeast Asia, such as Thailand, which has attracted visitors from China to the pandemic, said Kieran Nandra-Kerr, head of Pictet Asset Management’s new stock management. . “It was a good place,” Ms. Nandra-Kerrer said.

Chinese stocks have sold out sharply this year, and the government has closed many major cities as part of its zero-covid policy.

Tourists on the beach in Kuta, Bali.


Photo:

made nagi / Shutterstock

Although Indonesia is a tourist destination thanks to places like the island of Bali, international travel is less important to the overall economy than Thailand, which has lost to many potential tourists from Russia or China. The country’s 270 million people offer companies a large domestic consumer market.

Indonesia’s bustling markets helped pave the way for the IPO of GoTo Group, a home-grown technology giant last month whose offerings cover cars, e-commerce and financial services. Since then, GoTo shares have fallen about 20% of IPO value amid a wider rollback of global technology, giving them a market value of about $ 22 billion.

In other developing countries, Turkey’s MSCI index rose 17% in dollar terms, according to Refinitiv. Local investors in the country have sought stock safety as the Turkish lira weakened amid rising inflation, said Jakob Grapengiser, deputy chief investment officer at Stockholm-based East Capital, an asset manager specializing in emerging markets.

The Brazilian MSCI index rose 10% in dollar terms, which contributed to the export of Brazilian goods and some redistribution of Russian stocks, Mr Grapengiesser said.

Write Dave Sebastian at dave.sebastian@wsj.com

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