Tags: Asia, China, Emerging Markets, Indonesia

Despite Talk of a Bubble, Indonesia Is Still a Profit Haven for Investors

By , Contributing Writer, Money Morning •

Several readers who know of my affinity for Indonesian stocks have sent me articles reporting that one of the country's bank officials had expressed discomfort over the Jakarta's rising stock market and raised the specter of new capital controls.

I have been investing in emerging markets for a long time, and have found that the news services often pick up these kinds of comments from random officials that are then contradicted a day later by some other random official.

And that was the case this time, too.

"The actual stock prices now are actually exceeding the fundamental value," Perry Warjiyo, the head of Bank Indonesia's (BI) economic research and monetary policy division, said in an interview with Bloomberg News. "There is a bubble going on."

Warjiy also said that the central bank would put controls on capital inflows if needed to maintain financial stability.

The Indonesian currency, called the rupiah, fell immediately on the news, as did stocks in Jakarta.

But shortly after that report, Reuters chimed in with an interview of its own, and with a seemingly higher-ranking official - Budi Mulya, a deputy governor of Bank Indonesia.
Mulya told the wire service that the Indonesian central bank had no plans for capital controls.

"Indeed the stock market performance in many ways does reflect the performance of the real economy," he said. "BI reiterates and reaffirms that there is no plan for capital controls."

Mulya said that the reference to the "stock market valuation was taken out of context, and that the statement referred to BI's cautious stance towards large capital inflows of late."

So now we have dueling experts at Bank Indonesia, and not much clarity other than to observe that when a country's stock market is up 15% in three months and 130% in 12 months there are bound to be a lot of attempts by bears to knock it down.

Amid this back-and-forth, keep in mind that the fundamental issue is that Indonesian debt - as well as the debt of many of its Asian neighbors - is now considered to be much more creditworthy and stable than that of European countries like Greece and Spain. That's a somewhat shocking development for those of you who may recall the devastation of the region's currency crisis in the late 1990s. These countries' economies and political systems have come a long way since then.

After the credit agencies all upgraded Indonesian debt earlier this year, foreign investors have swarmed in, buying something like $2.8 billion (26 trillion rupiah) worth of debt so far this year, which was more than they bought all of last year.

With a stable economy and government, strong balance sheet, mineral riches and a growing relationship with both China and the United States, the country's future remains bright. There will be trouble spots ahead, to be sure, but the fundamentals and valuations will support new highs in time.

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