Miko Huang
The fifth-largest emerging market (EM), the largest economy in the Southeast Asia, the fourth-largest population in the world, the largest producer of nickel, the global EV hub…all are synonyms for Indonesia.
- Market Growth: Indonesia's stock market, represented by the FTSE Indonesia Total Cap Index, witnessed significant size growth, reaching $452 billion in total market capitalization in 2023, with a 19.6% increase from the previous year.
- Sector Evolution: While Financials have traditionally dominated the FTSE Indonesia Index, a notable shift has occurred with the emergence of technology companies like Goto Gojek Tokopedia ("Goto"), reflecting the evolving landscape of the Indonesian market.
- Future Outlook: Despite political transitions, such as the recent presidential election, Indonesia remains an attractive investment destination, supported by abundant natural resources, growth in renewable energy, and its strategic position in the EV value chain.
But would you believe that a decade ago, Indonesia was labelled by Morgan Stanley as one of the “Fragile Five” EM economies (together with India, Brazil, South Africa and Türkiye)? Today, this narrative has evolved significantly, and Indonesia is attracting increased attention from investors.
Strong Economy Matters
Indonesia’s economy expanded by 5.05% in 2023, despite a broader global economic slowdown, rising geopolitical tension and inflation risk. Growth came in at 5.04% in 4Q 2023, an acceleration from Q3 and higher than the same period in 2022. Household consumption continues to be the main driver for the country’s economy, comprising 53% of its total GDP for 2023. Classified as an “upper-middle-income” country by the World Bank, Indonesia is on the rise.
Indonesia's Real GDP growth solid at 5% with quick bounce back post Covid-19
Source: IMF, the World Bank, 2023. ASEAN-5 includes Singapore, Indonesia, Malaysia, Thailand and Philippines. Please see the end for important legal disclosures.
The country has seen strong foreign direct investment (FDI) flows since the Covid-19 pandemic: investments in the nickel processing industry continue to be strong because of the increasing interest in electric vehicles (EV). Roughly one third of the FDI has been poured into Indonesia’s metals and mining sector. A total of 744 trillion-rupiah ($47.35 billion) FDI was recorded in 2023, up 13.7% on an annual basis. According to Indonesia’s Investment and Coordinating Board (BKPM), the base metal industry (including basic metal, metal goods, non-metal, and equipment industry) was the top destination for FDI last year at $11.8 billion, while mining received $4.7 billion.
Global EV Hub Ambition
Indonesia is home to one of the world’s largest nickel reserves, is the second-largest producer of cobalt and aims to become one of the top three producers of EV batteries by 2027. Strong government support has contributed to the development of the country’s domestic mineral processing and refining industry. Nickel ore export has been banned since 2020 in a bid to boost the production of domestic value-added products and by 2025 Indonesia is expected to account for half of the world’s increase in global nickel production.
Global nickel reserves 2023 (in million metric tons)
Source: Statista Global nickel reserves by country 2023 | Statista, as of 2023. Please see the end for important legal disclosures.
Indonesia is moving up the EV value chain from upstream (nickel mining and smelting) to midstream (EV battery production and EV assembly) and downstream activities (EV parts and charging infrastructure). Global EV giants like Tesla and BYD plan to invest in EV production facilities in Indonesia while Hyundai Motor Group and LG Energy Solution have recently signed a cooperation agreement for the construction of an electric car battery factory in Indonesia.
This development has not gone unnoticed in Indonesia’s stock market. 2023 was extraordinary for the Indonesian IPO market, with almost 80% of total IPO proceeds coming from the renewable energy and metals/minerals sectors. PT Trimegah Bangun Persada Tbk, also known as Harita Nickel, launched the year’s third-largest IPO across the whole of Southeast Asia and Hong Kong.
Harita Nickel was added to the FTSE Indonesia Index in December 2023 and classified as a mid-cap company in the Basic Materials Industry (the FTSE Indonesia Index comprises large and mid-cap companies listed on the Indonesia Stock Exchange or “IDX”).
As at the end of March 2024, seven Basic Materials companies accounted for a 7.9% weighting in the index, four of which are involved in the nickel mining and processing businesses.
Evolving Stock Market
Indonesia’s stock market has continued to grow over the last several years. The total market capitalisation of the FTSE Indonesia Total Cap Index, an index that includes large-, mid-, small- and micro-cap Indonesian companies, grew to U$452 billion in 2023, a 19.6% increase from 2022. Apart from this significant growth, Indonesian IPOs have also seen the emergence of a new trend that is more focused on renewable energy production (such as nickel mining and processing, which is crucial for EV battery manufacturing) and tech unicorns.
The FTSE Indonesia Index recorded a 2.9% total return year-to-date in terms of USD, outperforming the ASEAN Extended and Emerging regions (-0.2% and 2.4% respectively). It also delivered relatively attractive returns over three and five years, with annualised returns of 8.9% and 3.6%, respectively.
Total return comparison (in USD terms)
Source: FTSE Russell, as of 29 March 2024. All indices have been rebased to 100 on 29 December 2010. Past performance is no guarantee of future results. Returns shown may reflect hypothetical historical performance. Please see the end for important legal disclosures.
In recent years, Financials have dominated the FTSE Indonesia Index, representing approximately 50-60% of the total market. But a more interesting combination has started to emerge. In March 2023, the index welcomed its first tech constituent—Goto Gojek Tokopedia (“Goto”). Goto rode the wave of the 2022 technology boom as Asia’s third largest and the world’s fifth-largest tech company, raising $1.1billion from its IPO that year. The company was a merger between two valuable startups—ride-hailing giant Gojek and e-commerce-group, Tokopedia, offering mobility, food delivery, logistics, e-commerce and financial technology to Indonesians’ daily lives. As of 29 March 2024, Goto sat as the 7th largest constituent in the FTSE Indonesia Index with a weight of 2.8%.
Industry distribution
Source: FTSE Russell, as of 29 March 2024. Past performance is no guarantee of future results. Returns shown may reflect hypothetical historical performance. Please see the end for important legal disclosures.
The ecosystem surrounding the FTSE Indonesia Index includes futures tradeable on the Singapore Exchange (SGX), making it easier for investors to manage the risks associated with Indonesian equities. Gradual improvements have been seen in the liquidity of SGX FTSE Indonesia Index Futures, indicating an increased market interest in trading Indonesian equities.
Indonesia concluded its presidential election in Feb 2024 with Prabowo Subianto, the former special forces commander, emerging victorious. All eyes were on the presidency and the expected continuation of economic reforms and the focus on growth. While investors may initially adopt a cautious approach in response to the new presidency, the country’s abundant natural resources, its maturing and vital role in the EV value chain, its strong trade and investment flows all support the case for Indonesia to remain a compelling global investment proposition. The country is likely to remain at the forefront of investors’ minds throughout 2024 and beyond.
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