Major market slayer, Sharpfokus72
We (almost) caught FTSE
2018 has been a difficult year for the stock market. The JCI has a negative return for the year & the rolling returns which used to be over 20% have come down to effectively 0% in the last few years. But the JCI continues to enjoy relative strength. In 2017 we overtook Australia’s ASX index & in 2018 we almost caught up with the U.K.’s FTSE. Why?
Size
Too 10
What are the secretly strong fundamentals of Indonesian stocks? I think it comes down to 3 simple things. The first is size. Yes we are a big country & we have a lot of people, but what I mean here is the relative size of listed companies. Our top 10 stocks are almost 50% of total market value. I don’t necessarily like this but it makes it simple for investors.
Number 1
We have also had some very large individual stocks. I can remember not long ago, when Telkom was 16% of the total market value! Most of the number 1 market largest value stocks since then have been about 10% of the market. The current incumbent BBCA is 9%. This also make it simple for you to invest. You could just buy 1 stock.
GDP
For the future, size is also an advantage. Indonesian GDP hasn’t grown for a few years, but it’s worth $1tn. Meanwhile the stock maket is less than $500bn, not even half the value. As most global markets are worth 100% or more of GDP, that means plenty of potential upside for the future.
Simplicity
Sectors
The second thing which makes Indonesian stocks attractive to equity investors is simplicity. I’ve worked in other markets where I couldn’t understand a thing. But when I came here, everything seemed much clearer. We have easy to identify & interesting sectors, banking, property, consumer, mining, infrastructure, Agriculture.
2018 has been a difficult year for the stock market. The JCI has a negative return for the year & the rolling returns which used to be over 20% have come down to effectively 0% in the last few years. But the JCI continues to enjoy relative strength. In 2017 we overtook Australia’s ASX index & in 2018 we almost caught up with the U.K.’s FTSE. Why?
Size
Too 10
What are the secretly strong fundamentals of Indonesian stocks? I think it comes down to 3 simple things. The first is size. Yes we are a big country & we have a lot of people, but what I mean here is the relative size of listed companies. Our top 10 stocks are almost 50% of total market value. I don’t necessarily like this but it makes it simple for investors.
Number 1
We have also had some very large individual stocks. I can remember not long ago, when Telkom was 16% of the total market value! Most of the number 1 market largest value stocks since then have been about 10% of the market. The current incumbent BBCA is 9%. This also make it simple for you to invest. You could just buy 1 stock.
GDP
For the future, size is also an advantage. Indonesian GDP hasn’t grown for a few years, but it’s worth $1tn. Meanwhile the stock maket is less than $500bn, not even half the value. As most global markets are worth 100% or more of GDP, that means plenty of potential upside for the future.
Simplicity
Sectors
The second thing which makes Indonesian stocks attractive to equity investors is simplicity. I’ve worked in other markets where I couldn’t understand a thing. But when I came here, everything seemed much clearer. We have easy to identify & interesting sectors, banking, property, consumer, mining, infrastructure, Agriculture.
Businesses
The businesses themselves need little explaining too. Telkom does phone connections, BCA does bank transactions, Astra sells cars & motorbikes, Gudang Garam sells cigarettes, Indofood does noodles, Vale mines nickel & Astra Agro produces palm oil. You don’t need to be a rocket scientist to work out how all these companies make money.
Financials
The financial statements are also quite easy to read. In a lot of other markets the accounting has become so complex, the income statements make little sense & net profits are hardly related with cash flow. Here in Indonesia revenue is revenue & spending is spending & what’s left over is profit. It makes it easier to make financial models.
Strength
No government
A third fundamental which makes Indonesian stocks attractive is the strength of the companies. One of the main reasons for this is the lack of government involvement. For many years, most Indonesian companies worked by themselves. This independence has been a great advantage. Note in recent years this has changed & there’s been unprecedented government meddling in many sectors.
Infrastructure
One thing companies have had to do is build up their own infrastructure. Roads, ports, power, water & especially distribution networks. This is one thing you often hear managements complain about, but in reality it has been a tremendous advantage to have it done privately rather than by government. All that has also changed in the last 4 years. Be careful what you wish for.
Market share
The need to build up infrastructure has meant the listed companies tend to have huge & dominant market shares. It’s one of the great myths that competition is good, it’s not. Dominance is key. The companies which dominate can grow & produce capital rather than wasting it on competing. Indonesian stock market investors enjoy dominance.
2019?
Indonesian stocks with listed company size, simplicity & strength has proven a major market slayer, even when not doing so well. Since 2000 we already confortably beat major markets China & Singapore, last year we overtook the ASX in index points & this year we got to within 400 of the FTSE. What will be in 2019? I predict closing the market cap to GDP gap & overtaking the FTSE.
Be a great investor!
Sebastian
The businesses themselves need little explaining too. Telkom does phone connections, BCA does bank transactions, Astra sells cars & motorbikes, Gudang Garam sells cigarettes, Indofood does noodles, Vale mines nickel & Astra Agro produces palm oil. You don’t need to be a rocket scientist to work out how all these companies make money.
Financials
The financial statements are also quite easy to read. In a lot of other markets the accounting has become so complex, the income statements make little sense & net profits are hardly related with cash flow. Here in Indonesia revenue is revenue & spending is spending & what’s left over is profit. It makes it easier to make financial models.
Strength
No government
A third fundamental which makes Indonesian stocks attractive is the strength of the companies. One of the main reasons for this is the lack of government involvement. For many years, most Indonesian companies worked by themselves. This independence has been a great advantage. Note in recent years this has changed & there’s been unprecedented government meddling in many sectors.
Infrastructure
One thing companies have had to do is build up their own infrastructure. Roads, ports, power, water & especially distribution networks. This is one thing you often hear managements complain about, but in reality it has been a tremendous advantage to have it done privately rather than by government. All that has also changed in the last 4 years. Be careful what you wish for.
Market share
The need to build up infrastructure has meant the listed companies tend to have huge & dominant market shares. It’s one of the great myths that competition is good, it’s not. Dominance is key. The companies which dominate can grow & produce capital rather than wasting it on competing. Indonesian stock market investors enjoy dominance.
2019?
Indonesian stocks with listed company size, simplicity & strength has proven a major market slayer, even when not doing so well. Since 2000 we already confortably beat major markets China & Singapore, last year we overtook the ASX in index points & this year we got to within 400 of the FTSE. What will be in 2019? I predict closing the market cap to GDP gap & overtaking the FTSE.
Be a great investor!
Sebastian
