Investments in Indonesia Soar~ Investors flock to new opportunities

Investing in Indonesia: Another Asian ‘Tiger’ Roars Ahead

by Tony D’Altorio, Investment U Research
Investments in Indonesia Soar~ Investors flock to new opportunities

Mention Asia and most global investors will think China or India. But they may want to start paying attention to another country in the neighborhood.

In 2009, Indonesia had the world’s second-best performing stock market, up nearly 86%. And so far this year, it has climbed 45%.

That’s a far cry from October 2008′s dark days, at the peak of the global financial crisis. Back then, Indonesia’s Jakarta Composite Index fell 50%, and even had to shut down for three days.

But today, those troubles seem long past. Things are looking up for the archipelago… and anybody smart enough to invest in it.

Indonesia’s Remarkable Awakening

Indonesia has experienced remarkable change in the past few years.

Twelve years ago, it broke free from three decades of authoritarianism. Today, it has the world’s fourth largest population and is one of Asia’s fastest growing economies.

The country still has issues with deeply entrenched corruption, failing infrastructure and legal uncertainties. Yet it still offers big returns for investors to revel in.

• Overall, Indonesia has sound economic fundamentals and sustainable economic growth at around 6%.
• It also boasts low benchmark interest rates, high foreign currency reserves and strong foreign direct investment.

That all factors into why the Japan Credit Rating Agency upgraded Indonesia’s government debt to investment grade this year.

It should know, since Japan is Indonesia’s largest, foreign, long-term investor. Investors there have long-kept parts of their fellow Asian nation in their portfolios.

Other countries are also beginning to take notice. In the World Economic Forum’s 2010-2011 Global Competitiveness Index rankings, Indonesia rose 10 spots to 44th place… the list’s third-biggest mover.

Indonesia’s Middle Class

Americans largely continue to view Indonesia as a commodities-based economy. But private consumption now makes up about two-thirds of the economy there.

It does have an abundance of natural goods such as coal, tin and palm oil. But its commodities sector has actually underperformed this year.

Instead, the consumer sector took off, thanks to the 60 million low-income Indonesian workers projected to join the middle class in the coming decade. If so, that makes the country the fastest growing consumer market after only China and India.

Market research company Euromonitor expects that to continue. It sees the number of Indonesian households with $5,000-$15,000 in annual disposable income growing from 36% of the population this year to over 58% by 2020.

The Asian Development Bank (ADB) also recently noted growth in Indonesia shifting from urban centers on the main island of Java to other parts of the country. And poverty reduction in such rural areas is much bigger than in the urban areas.

Big retailers, banks, automakers, insurers and consumer goods producers are tapping the growth. In return, they’re posting record profits this year.

Astra International (PINK: PTAIF), Indonesia’s biggest automaker, certainly is. Its shares have risen over 60% this year thanks to booming business. Astra’s vehicle sales rose 60% January – September 2010. And the larger share of that came from the islands of Sumatra, Sulawesi and Kalimantan.

As a whole, Indonesia is set to be the region’s largest automotive hub, producing 730,000 automobiles and 7.2 million motorcycles. Despite expanding factory capacity, Astra says it can’t keep pace with demand.

Investing in Indonesia

U.S. investors who want a part of Indonesia’s growth should try one of two ETFs.

• iShares MSCI Indonesia Investable Market Index Fund (NYSE: EIDO): Fairly well balanced, it has about 29% in financials, 27% in consumer stocks and 22% in commodity stocks. It has about 13% in Astra International, its largest holding.
• Market Vectors Indonesia Index ETF (NYSE: IDX): It contains about 27% in financial stocks, 23% in consumer stocks and 26% in commodity stocks. Its largest position is also in Astra, but only with 8%.

The only downside to investing in Indonesia is the possibility of a short-term stock bubble. Thanks to QE2, some U.S. dollars could rush in there in search of higher returns.

The search for hard assets has already sent some of its commodity producers’ stocks rocketing higher recently.

Fortunately, many companies there still boast growth well above their 2011 P/E ratios. And the Indonesian rupiah continues to gain against the dollar.

So in the long-term, Indonesia looks good… and is set to look even better.

Good investing

Balifornian Tours is the ultimate in custom guided tours to Bali and Indonesia

5 Credit Card Tips for the World Traveler

Credit card acceptance continues to rise in almost every corner of the globe, but with many cards, that convenience can come at a cost. Here are five ways to be smarter about using your credit card overseas.

By Zach Honig
September 27, 2010

There's no question that cash is still king in many countries, but the widespread use of credit cards in more-developed nations has led to an increase in acceptance of Visa, MasterCard, and American Express cards everywhere from Tulum to Timbuktu.

Credit card fraud is an even bigger issue overseas than it is at home, however, and foreign transaction fees can easily add up. Here are five tips to keep in mind before your next trip across the pond.

1. Watch out for foreign transaction fees. Don't expect to swipe your card abroad without your card issuer taking a cut of your $50 olive wood wine bottle holder in Athens. Or that $25 Hard Rock Café shirt you couldn't leave behind in Sydney. Card issuers call these foreign transaction fees -- 1 percent for MasterCard and Visa, and a whopping 2.7 percent for American Express transactions abroad. Keep in mind that MasterCard and Visa fees may be even higher depending on your issuing bank, so be sure to call ahead to check on fees when you're taking care of tip number two.

2. Phone ahead. Don't board your flight without first calling your credit card issuer. Inform the customer service representative of your trip dates and the countries you plan to visit while abroad. Identity thieves can capture your credit card information in the U.S. and produce a duplicate card overseas, so banks have become increasingly vigilant when it comes to international transactions.

You may also need to call ahead before making purchases that are processed abroad, or prepaying for tours or hotels before you travel, as these may appear as foreign transactions. Also confirm your mobile phone number with the representative, just in case the bank needs to reach you while you're traveling.

3. Keep records. Each year, I return from at least one trip to find a charge I don't recognize. Typically, the fee is much higher than the amount I thought I had paid at the time. Be sure to keep every receipt from your transactions abroad, and convert the amount charged to U.S. dollars -- banks process transactions using real-time currency rates. This way, there aren't any surprises when you return home.

It's also critical to write down essential account information before leaving home, just in case you lose a card while you're abroad. Even better: take a picture of the front and back of each card and e-mail a copy to yourself and a trusted friend or relative. This can help you save money on phone calls when you cancel your cards and request a replacement.

4. Bring multiple cards. There's a fairly good chance that you won't run into any problems while using your cards abroad, but some vendors may not accept certain cards. In Europe, for example, chip-and-PIN cards are becoming more popular but most U.S. banks haven't quite caught on. In case you lose your wallet, it also never hurts to have a backup to keep in the hotel safe. If you have multiple bank accounts, bring more than one ATM card as well so you won't run into any issues with tip number five.

5. Use cash. There are obvious incentives to charging purchases to a credit card -- earning miles, purchase protection, etc. -- but in many cases, these perks don't make up for the foreign transaction fees charged by your card issuer. You won't run into any issues when it comes time to pay if you're able to present cold hard cash.

ATM withdrawals and cash advances at banks typically offer the best exchange rates -- avoid using private currency conversion services such as Travelex in the airport -- and some banks even have no-fee agreements with banks in the U.S. (Bank of America customers receive free withdrawals at China Construction Bank, for example.) Keep in mind that your bank may have daily ATM withdrawal limits.

I also never leave home without enough cash to make it to the nearest U.S. Embassy. I don't care if that means a two-day trek through the desert on a donkey -- there's always enough cash (in U.S. dollars) tucked away in a sock to get me home.

Bonus Travel Tip: Some card issuers offer additional benefits when you book travel using your card, such as lost baggage reimbursement and emergency cash transfers. Discuss these benefits with your bank when informing a representative about upcoming travel.