Indonesia May Spend $250 Billion on Infrastructure
Comment of the Day

December 01 2011

Commentary by Eoin Treacy

Indonesia May Spend $250 Billion on Infrastructure

This article by Shamim Adam - for Bloomberg may be of interest to subscribers. Here is a section:
During Yudhoyono's first five-year term, only 125 kilometers (78 miles) of toll roads were built. In China, 4,719 kilometers of expressways were added in 2009 alone. Indonesia aims to build 20,000 kilometers of roads and add 15,000 megawatts of power generation by 2014.

"We think sectors such as electricity and roads are likely to see more increases in spending than others due to a relatively more developed pace of reforms and comparatively greater government focus in those areas," Tan said.
Banks, toll road operators and cement and steel companies may benefit from the infrastructure spending, Hozefa Topiwalla, a Morgan Stanley analyst in Singapore, said in a separate May 10 report. It has an "overweight" rating on PT Bank Rakyat Indonesia, the nation's largest bank by revenue, and PT Indocement Tunggal Prakarsa, the nation's second-largest cement maker.

Investors from Japan and India in December and January signed about $39 billion of accords for projects from mass rapid transit systems and power plants to steel factories and ports. South Korea's Lotte Group said it may invest $5 billion in a petrochemical project.

Indonesia's improving public finances will enable the government to take on a "more active" role in providing infrastructure funding compared with six years ago, according to Morgan Stanley.

"With the public debt ratio having already fallen to 26.1 percent of GDP in 2010, one of the lowest in Asean, we think there is scope to take fiscal deficits gradually higher in support of infrastructure projects without jeopardizing public balance sheet or liquidity conditions," Tan said.

Eoin Treacy's view Indonesia represents a remarkable growth story where themes such as a large young population, high growth, the emergence of a vibrant middle class, world class commodity reserves and improving governance coalesce. China has been the focus of infrastructure investment for much of the last decade but this does not detract from the fact that per capita consumption of commodities such as iron-ore is on a secular upward trajectory among a wide number of Asian markets.

The Indonesian stock market has been a clear absolute and relative strength leader since late 2008 but hit a medium peak in August and posted its largest reaction in the course of the almost three-year uptrend. It has since found support, pushed back above the 200-day MA and a sustained move below 3600 would be required to question scope for additional upside.

Importantly, the Jakarta Finance Index has led the wider market since 2008. It retains a relatively consistent uptrend and held the progression of higher major reaction lows during the August decline. A sustained move below 470 would now be required to question current scope for additional upside.

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