Investing in Indonesia and the Philippines for Growth

by Jason Jenkins

What we now see is the emergence of a new economic world order. And I think that most in the industry have come to grips with it. Last week MarketWatch came out with its first special report in a new series dubbed the “New Tigers.”

As they state, the developed world can’t be counted on as the “end all, be all” turbine of growth it was once considered. I think we’ve all heard about its sovereign debt issues. Filling the void are rising, new dynamic economies that have set themselves up to drive global economic growth for decades to come – the new tigers.

The first edition looks at the two up-and-coming jewels of Southeast Asia. Here is the case for Indonesia and the Philippines.

They’ve Come A Long Way

Remember the Asian financial crisis that started back in July of 1997? It created hysteria that there might be a global economic meltdown because of financial contagion stemming from the region.

At that time, the IMF bailed out Indonesia and the Philippines. Now in 2012, both countries have pledged $1 billion each to the International Monetary Fund.

In economic terms, Southeast Asia’s stock is rising. Indonesia and the Philippines are seen as leading the way. As we stated before, the traditional economic heavyweights are burdened with excess debt, and now we see the historic regional heavy-hitters – China and India – losing some of their luster.

What’s all the hype about? Here are some intriguing things both countries share:

  • Each country has a rapidly growing economy with rising incomes.

  • Each country possesses a large and young labor force.

  • Both Indonesia and the Philippines have a growing middle class.

  • Both countries have stable elected governments that have passed legislation that has inspired investor confidence.

  • Both countries have solid banking industries.

  • And each has a strong position in foreign-exchange reserves that could protect against runs on their currencies.

Andrew Swan, head of Asian fundamental equities at BlackRock, stated, “You have a real contrast, which is why these markets have been doing well… We’ve had three to five years of great growth. But because there is so much room for growth, this can go on for so many more years.”

More Reasons to be Bullish…

  • Both Indonesia and the Philippines were given credit rating upgrades last year. (Indonesia is now considered investment grade by both Moody’s and Fitch.)

  • Each country’s stock market is among the world’s best performing over the last four years.

  • The IMF believes that real GDP in the Philippines will grow by 4.2% in 2012 and by 4.7% next year.

  • The forecast for Indonesia is even more impressive. The IMF expects their GDP to grow by 6.1% this year and 6.6% in 2013.

  • Each country’s fiscal house seems to be in order. Both have a very different balance sheet than a lot of those developed countries in the West. Indonesia’s gross government debt was about 25% of GDP last year. The Philippines debt was about 41% of GDP in 2011. This gives both countries more room to boost their economies if that situation ever arises. In comparison, Japan’s debt-to-GDP is above 200%.

This only presents the case for economic soundness. This isn’t your daddy’s or grandfather’s emerging markets. Suffice it to say, this also isn’t the Western world we’ve been accustomed to.

The special report goes into a lot of information. And I believe this is the heart and soul of what we need to look at. Part II of this piece looks at the strong banking industry in each country and the opportunities out there for global investors. These are plays that everyone will need to consider for years to come.

Good Investing,

Jason

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