Indonesia's Stock Market Pitch: Negative Growth, a Nephew, and a Pinky Promise

Indonesia’s stock market has been making headlines, and the headlines are not the kind the country’s investment-promotion authority usually likes. The benchmark index on the Indonesia Stock Exchange (IDX) has posted what can only be described as exceptional negative seven percent growth. ^[1] That is the kind of number that, in any other market, would prompt a quiet conversation about where to bury the money. Here, it is being marketed. I did the mathematics.

There has been some external commentary. An entity identified in the original reporting as the ‘MSEI’ — the body cited for the recent benchmark assessment — has apparently concluded that Indonesia is not yet where it needs to be on transparency. ^[2] The market’s response, broadly, has been to ask why anyone would want Western-style transparency when you can have Asian family values instead. ^[3] This is, of course, a coherent position. It is also the position of a country that just got downgraded.

And while we are on the subject of governance, allow me to introduce you to the new deputy governor of Bank Indonesia (BI), the central bank. He is, of course, the president’s nephew. ^[4] The natural concern is that political influence might find its way into monetary policy, the way water finds its way downhill. That concern has been addressed. He made a pinky promise. ^[5] And that, in this market, is the policy framework. Make of that what you will.

Moving on to the currency. The rupiah is doing exactly what a well-managed emerging-market currency should do, which is to make the US dollar worth about twenty percent more than it was five years ago. ^[6] In fairness to the central bank, this is a strong showing by the rupiah, relative to the dollar, over a five-year window, and you can read the chart yourself.

So here is the arithmetic the marketing department would prefer you did not do. If you invested in the IDX five years ago and converted your returns back into US dollars, you would have made a staggering nine percent. ^[7] I did mathematics again. Nine percent. Five years. Staggering. If, during that same period, you had put the same money into the S&P 500 — the broad US equity index — you would only have made gains of about eighty percent. ^[8] Only. That is the word the original commentary uses. I am not making this up.

The silver lining, and I want to be generous here, is that the party is just getting started. Indonesia’s sovereign wealth fund is now also entering the fray. ^[9] This is, on balance, a positive development, provided you do not have questions. You should not have questions. There is nothing to be concerned about. There is certainly nothing to be concerned about with the certainty of the legal system. ^[10]

So come and invest. Are you a foreign investor who cannot find a market willing to lose your money for you? May I introduce you to the Indonesian stock market, where practically everything is a political cluster. The pitch is straightforward: negative growth, a downgrade, a politically-adjacent central bank, a weakening currency, and a sovereign wealth fund with its own headline problems, all underwritten by a legal system we are told is fine. Personally, I think the brochure could use a refresh. But the offer is on the table, and in this market, the offer is the product.