Hexindo Adiperkasa

[specuvestor]

Generally agree but while Wahid that represents the Muslim majority and old establishment Megawati / Prabowo tried to get a lame duck president, SBY managed to manuveur the politics and push policies, including reforms and anti-corruption forward. I see him as the quiet giant

Inflation was double digits back in Suharto days, which is why you have fantastic sales growth but market trading at single digit PE in the past. IDR hence was perpetually depreciating, which was laughable that they peg IDR to 2500 to USD before AFC.

Since the IDR has a long history of devaluation against major currencies, an investor in IDR-denominated assets should be quite worried about possible future devaluation. While there are good reasons for why this was the case in the past, it need not be so for the future.

Like most South East Asian nation during the post-war years, there was a lot of inefficiency in the Indonesian economy due to politically-instituted rent-seeking activities, and nepotism. Bob Hasan, Liem Sioe Liong, and the children and numerous other associates of Suharto collected plenty of 'tax' through economic activities which they monopolised. This 'tax' allowed them to build their private wealth, and develop mostly noncompetitive manufacturing industries. All these 'wasted/misused resources' resulted in high inflation.

Throughout this time, Indonesia did not see foreign investors as a long-term source of their economic development, but tended to treat them as short-term patsies to be exploited. Foreign investors who bought the bonds of Bentoel (a cigarette manufacturer) were given the runaround by the judiciary, when they found that the company's accounting was fraudulent. They never got their money back, and Bentoel was never punished.

A very strong nationalistic/anti-foreigner attitude was cultured since its desire to be free of the Dutch colonial yoke. They were, after all, exploited by the 'white men' for their natural resources, for a few hundred years.

Even so, the USD/IDR throughout Suharto's 30 years was mostly fine, as the country had strong export earnings as an (ex-opec) oil producer. It wasn't until the devaluation of the Thai Bhat in 1997 -- which resulted in the fear of other USD-pegged Asian currencies not being able to hold the peg -- led to the self-fulfilling devaluation of the IDR, and the subsequent ousting of Suharto the following year. The attempt by, and initial failure of, IMF to institute free-market policies in exchange of its rescue package revealed the depth of corruption and nepotism to an international audience.

The subsequent presidents -- Wahid, Megawati, and Yudhoyono -- were from various political factions vying for power towards the final days of Suharto's rule. So it was pretty much business as usual. But since Jokowi won the election in 2014, the old problems of the nation seems to at least not be as prevalent. If not for the recent covid-19 which caused capital outflow, the USD/IDR would only have appreciated slightly, while the SGD/IDR would have been flat, since Jokowi's inauguration.

Thankfully, Jokowi won his second term last year. So we may possibly see greater elimination of inefficiencies in the economy, and more fruitful investments from the government budget. So far, inflation has been lower than the previous decade. If Prabowo had won instead, I think the country will return to its old ways.

[holymage]

Thank you karlmarx and specuvestor for sharing this piece of Indonesia political history. Admittedly, I am not familiar with Indonesia politics and economy, and did extrapolation. Indeed, after Jokowi's inauguration, abeit some depreciation, the IDR has been comparatively much stable from USD/IDR 12,000 (2014) to 14,000 (2019).

Do you guys mind sharing your sources to build relevant political knowledge?

[specuvestor]

Mainly living through it / experience and geopolitical history of SG- Indonesia

In 10 years' time we will be able to share with other people what really happened during probably the most volatile period I've seen during COVID-19, vs what text book says In previous crisis statistically it may look similarly volatile but I've never seen markets go up and down 10% every day; usually it's more like slight up and down big during crisis I'm pretty sure ETF and computer / quant trading has something to do with it

[karlmarx]

I haven't eaten as much salt as specuvestor, so my knowledge is almost exclusively from secondary sources.

The following are useful for understanding Indonesia history/politics/economy/everyday-life:

https://www.goodreads.com/book/show/2756...buO&rank=2

https://www.goodreads.com/book/show/1307...QL3&rank=1

https://www.goodreads.com/book/show/2281...lRL&rank=1

https://www.goodreads.com/book/show/2331...exj&rank=1

This for Thai Bhat devaluation:

https://www.goodreads.com/book/show/2000...MVb&rank=7

[karlmarx]

Generally agree but while Wahid that represents the Muslim majority and old establishment Megawati / Prabowo tried to get a lame duck president, SBY managed to manuveur the politics and push policies, including reforms and anti-corruption forward. I see him as the quiet giant

Inflation was double digits back in Suharto days, which is why you have fantastic sales growth but market trading at single digit PE in the past. IDR hence was perpetually depreciating, which was laughable that they peg IDR to 2500 to USD before AFC.

Even from my research, SBY has frequently been painted as a 'good boy' kind of person. But I felt this his military heritage/network made him vulnerable to blackmail (I would like a timber concessions) from the various military factions which he depends on for support. 

I thought Wahid would have been good for the country, given his stance towards religious tolerance/plurality and anti-corruption. But of course, he was too old and just not savvy enough to manage the different interest groups. 

As for Prabowo, who's not only ex-military but also Suharto's son-in-law, I think not much needs to be said.

[specuvestor]

SBY was supposed to be a lame duck puppet but I think he managed the various vested interest very well that even Golkar was not as menacing as now. Personally I think he provided the best stability and incremental progress post Suharto era.

Prabowo is largely understood as the man behind the violence towards Indonesian Chinese during 1998 instability, while he was in charge of the special forces. And basically turned against his father-in-law. He’s worst case scenario.

Sorry to digress

[holymage]

I happen to come across an article that the Rupiah depreciated 8% against the USD recently, and is the worst performing currency in Asia. I asked myself, why is this so. Then, I recalled that Geo Energy issued bonds in USD.

Without any numbers to back it up, if my guess is not wrong, a lot of Indonesian companies have issued debt in USD, to take advantage of the cheap rates compared to if the debt were to be priced in Rupiah. The issue would come when the USD were to surge in value relative to the Rupiah, then there might be a vicious cycle of decreasing IDR/USD, leading to defaults and bankruptcies.

What I am trying to say is, investing in developing countries has to take into account of macro aspects as well. It is not only about political stability.

If I didn't recall wrong, there was a similar incident whereby tons of companies in a developing country issued debt in USD, eventually leading to mass default and substantial currency depreciation when the USD rose. Can't recall if that was during the Asian Financial Crisis. Would be great if someone could point it out.

[karlmarx]

Think of a country as a company; the country's politicians as a company's management; the country's currency value as a company's share value. Just like a company, a country can be earning more or less; it can be a net spender or a net saver; it can have a net cash or a net debt position.

And in the same way that an investor can take a short-term or long-term view on a company's prospects, the investor can also take a short-term or long-term view of a country's prospects.

===

Indonesian companies borrow in USD not only because it is cheaper, but also because most of their earnings are in USD. Export of natural resources makes up 30% of their gdp. The danger to such companies is not so much that IDR weakens against USD -- which in fact will be positive for the companies with most expenses in IDR -- but that prices of natural resources fall.

Geo Energy and most other Indonesian-based companies issue USD bonds because they are targeting international investors. And international investors generally do not hold IDR, and like most of their peers, will prefer not to. Geo Energy does not earn in IDR. If it does go belly up, the cause will more likely be lower coal prices than weakening IDR against the USD.

It is, of course, possible that Indonesian companies which borrow in USD but earn in IDR may experience massive losses and bankruptcy when USD appreciates against IDR. Investors will have to study the companies in question to determine if such a risk is present.

[jaco]

Nice catch.
For those interested in Indo shares, there are quite a fair bit of companies with net cash, good potential and selling at low PE, below are somes that I personally vested in:
Prodia (PRDA)
Tempo Scan (TSPC)
Roda Vivatex (RDTX)
Total Bangun (TOTL)

They all seem solid from a financial performance perspective. How do you find companies like these? Do you run a screener?

[ksir]

Nice catch.
For those interested in Indo shares, there are quite a fair bit of companies with net cash, good potential and selling at low PE, below are somes that I personally vested in:
Prodia (PRDA)
Tempo Scan (TSPC)
Roda Vivatex (RDTX)
Total Bangun (TOTL)

They all seem solid from a financial performance perspective. How do you find companies like these? Do you run a screener?

Accumulated over 10 years of compounded experience in investing (or rather, specuvesting) in Indo market.

The quantitative is actually quite simple though, they all must be net cash.

But in Indo, the qualitative is equally important (or far more important), which is the integrity of the numbers and management.

I spent alot of times pondering the qualitative parts.

If you do a simple screening, alot of other companies are also net cash, but their numbers and management are really not that trustable.

Even those in my list, whenever there is any doubts in the Management integrity and numbers, they are shown to the door!

In Indo, I hold below 2 principles more firmly:
1) Philip Fisher's last point of his 15 points of what to buy.
2) Keynes' “When the facts change, I change my mind. What do you do, sir?”


Sent from my iPhone using Tapatalk