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Commodity Rebound Would Be Boon for Russia, Indonesia
China’s infrastructure boom could be a boon to Russia and Indonesia. Bloomberg News
As commodity prices stabilize, two developing countries should be winners: Russia and Indonesia.
Among major emerging markets, commodities as a percentage of exports are greatest in Russia, at roughly 70%, followed by Brazil (51%), India (35%), and Indonesia (35%), according to World Trade Organization data provided by Pavilion Global Markets. But India imports half of its commodities and food needs, and the rise in oil prices may weigh on its economy, as will the lingering negative of last fall’s rupee demonetization. And Brazil is still struggling with high interest rates and debt, as it recovers from a deep recession.
But stronger commodity prices should benefit Russia and Indonesia. Driving demand are two factors: The first is China, which could spend close to $800 billion over the next three years on transportation improvements alone. The second is the U.S,, which also is likely to undertake infrastructure projects that will drive commodity consumption.
Exports from emerging markets have risen over the past six months, helping to boost foreign currency reserves in half of them, says François Boutin-Dufresne, a global strategist at Pavilion, an independent research and brokerage firm in Montreal. He’s bullish on buying the MSCI Emerging Markets Index over the next three to six months. The iShares MSCI Emerging Markets exchange-traded fund (ticker: EEM) is up 11% this year.
BUT THE STRATEGIST IS ESPECIALLY ENTHUSED about Russia and Indonesia. And while he won’t name stocks, he says investors shouldn’t ignore the cheap emerging-market banking sector, especially in commodity-exporting nations. Banks account for more than a quarter of the emerging market index’s capitalization, and they’re relatively cheap. They trade at roughly nine times forward earnings estimates, versus 14 times for the rest of the index (excluding financials), and 17 times for the materials and construction sector.
Given rising U.S. yields, Boutin-Dufresne tells Barron’s, he finds these banks’ resilience “quite surprising” and that he expects them to benefit from inflows into emerging-market equities over the next three to six months.
As for Russia, it’s likely to emerge from recession this year with gross domestic product growth of 1.1%, as oil hovers near $50 per barrel. It has agreed to curb oil production through May, cooperating with the Organization of Petroleum Exporting Countries, though it’s not a member. Russia also is a big exporter of natural gas. Energy exports and central bank policy have shored up the ruble, and any détente between the U.S. and Russia would only help equities. U.S.-traded shares of Sberbank (SBRCY), one of this column’s picks for 2017, are up nearly 2% this year, and they remain attractive.
In Indonesia, expected 2017 GDP growth of 5.1% is among the highest in large emerging markets, thanks to exports of crude and palm oil, plus strong domestic consumption and a reform-minded government. As prices of exports rise faster than those of imports, the economy should benefit.
Indonesia’s central bank has been cutting interest rates, and its currency has shown strength against the dollar. That’s made its stocks more attractive than bonds, Boutin-Dufresne says. An easy way to play the country: the iShares MSCI Indonesia ETF(EIDO), which is reasonably liquid and has trailed the emerging markets ETF this year, rising about 2%.
http://www.barrons.com/articles/commodity-rebound-would-be-boon-for-russia-indonesia-1488000350
Indonesia seeks to boost exports to South Korea through AKC
The Trade Ministry has expressed its commitment to boosting trade with South Korea through the ASEAN Korea Center (AKC), which aims to achieve trade worth a total of US$200 billion by 2020. The commitment was made during the ninth council of the AKC in Seoul on Feb. 16-17.
“In this year’s work program, we’ve committed to partaking actively in the game exhibition in Busan. We’ll also hold a joint workshop on food for SMEs [small and medium enterprises] in Jakarta and Makassar,” said Ari Satria, the ministry’s secretary general for export development in a press statement on Friday.
The AKC is an inter-governmental organization supporting and improving cooperation among ASEAN countries and South Korea through people-to-people contact. For the January-to-November 2016 period, Indonesia enjoyed a trade surplus of $253.8 million through the facility, a notable improvement from a $669.42 million deficit in the same period in 2015.
Since ASEAN and South Korea cooperation started in 1989, Korea has become the fifth-biggest ASEAN trading partner. ASEAN is the second-biggest trading partner for South Korea according to ministry data.
“We hope to ride on the cooperation in the AKC to benefit Indonesia, in terms of increasing our exports,” Ari added. (ags)
http://www.thejakartapost.com/news/...boost-exports-to-south-korea-through-akc.html
Indonesia's state-owned manufacturing enterprises aim to go global
Indonesian economy is facing two intertwined problems: declining export share and declining manufacturing share. The exports-to-GDP ratio decreased from 34 percent in 2005 to 21 percent in 2015, the lowest since 1986. Over the same period, the manufacturing share of GDP declined from 27 percent to 21 percent, the lowest since 1988. These challenges have led the government under President Joko “Jokowi” Widodo to emphasize the importance of “production-driven economy” and exports of manufactured goods.
In this regard, Indonesia’s state-owned enterprises (SOEs) in high value added manufacturing sectors have recently shown impressive progress.In March 2016, railway company Industri Kereta Api (INKA) exported 15 train cars, the first batch of 150 train cars ordered by Bangladesh Railways; marking the first time INKA had exported passenger trains to a foreign country.
In May, the ship manufacturer PAL Indonesia completed its first warship export by delivering a strategic sealift vessel to the Philippines’ defense department; PAL is currently building a second warship for the same client.
In recent years, the state-owned weapons manufacturer Pindad has signed contracts with a range of countries including Laos, Nigeria, the Philippines, Thailand, and the United Arab Emirates. An airplane producer, Dirgantara Indonesia (DI), expanded its exports of multi-purpose aircrafts, called CN-235s, to Thailand and Senegal at the end of 2016.
According to these SOEs’business plans, the internationalization strategy has just begun. INKA aims to enter Egypt, Myanmar, Pakistan, Sri Lanka, and Thailand, and PAL Indonesia plans to penetrate Southeast Asia and the Middle East. Fueled by around 200 letters of intent for purchase from domestic and foreign airlines, DI is expected to start commercially manufacturing homegrown 19-seat commuter planes, called N-219s, in 2017.
Pindad is considering foreign direct investment and cross-border acquisitions and is already strengthening international partnerships to expand its global footprint.
The government provided Rp 7.7 trillion from the budget to the aforementioned SOEs from 2011 to 2016. The government made its first major investment in state-owned manufacturing firms since the Asian financial crisis in 2011–2012 to rekindle industrialization amid declining commodity prices. The second government investment was made in 2015–2016 as the government emphasized the importance of strengthening SOEs’global competitiveness.
The Indonesia Export Financing Agency, or Indonesia Eximbank, is also playing an important role in supporting SOEs’global activities. In 2015, Indonesia Eximbank was assigned a special mandate to support industrial upgrading and long-term export expansion through the National Interest Account (NIA) scheme.
Indonesia Eximbank’s provision of Rp 270 billion in export financing under this program contributed to INKA winning the international tender in Bangladesh. The government has also expressed the possibility of DI using the NIA scheme when exporting its airplanes in the future.
Moreover, the government’s economic diplomacy as one of Jokowi’s foreign policy priorities is helping SOEs to expand overseas. The government has instructed SOEs to prioritize entering non-traditional markets and using those markets as testbeds or stepping stones for implementing a wider globalization strategy. To support SOEs, the government has been actively searching for and engaging with developing economies that may currently be small but have long-term growth potential. Jokowi himself has enthusiastically promoted INKA’s products to Sri Lanka’s president and prime minister.
http://www.thejakartapost.com/acade...nufacturing-enterprises-aim-to-go-global.html
Anti-corruption improving across SE Asia, despite graft at higher levels
THE anti-corruption landscape throughout Southeast Asia is improving slowly but steadily, but often in spite of those in power, a report from Hogan Lovells has found.
The report from the global law firm, entitled Global bribery and corruption review 2016, found that despite improvements across the region, corruption is still prevalent at high levels in a number of the countries looked at.
Malaysia, Thailand and Indonesia are among the countries that, while having made progress to tackle corruption, have actually been held back in reputation or progress due to vested interests and actions by public officials and law enforcement.
This, however, is also showing signs of improvement with “increasing regulatory, commercial and political pressures” slowly bringing about increasingly effective anti-corruption legislation and enforcement.
Malaysia is still suffering the fallout from the 1 Malaysia Development Berhad (1MDB) scandal that saw the country’s reputation with investors suffer significantly.
The allegations surrounding Prime Minister Najib Razak accusing him of siphoning millions from the state investment fund, and the ensuing inadequate investigations that followed, have brought about a dramatic change in perception of the country’s ability to combat graft.
“It has made investors doubt whether there is any transparency in the country (at any level of government),” Hogan Lovells reports.
The impression of Malaysia on the world stage is that of a country “engulfed in corruption at the highest political level” and this is having a knock on effect on the economy and foreign investment.
Vietnam, was highlighted as one of the main problem areas in the region, ranking only 113th place (out of 176) in Transparency International’s Corruption Perception Index (CPI). Corruption is still a major issue according to Hogan Lovells, from “daily, low-level facilitation payments to high-level corruption scandals” with little domestic enforcement action being taken against government officials or the offending companies.
But Hogan Lovells feels that it is only a matter of time before this changes and the Vietnam anti-corruption authorities “wake up to the significant credibility and revenue deficit they face” as a result of not imposing strict punishments and sanctions for corrupt practices.
Indonesia on the whole is becoming more transparent, the report found, which is reflected in their dramatic rise in the CPI from 118th to 88th over a four year period. This was powered by efforts to create a “safe and sophisticated commercial environment” that is being managed by a more open central and regional government.
While there have been drastic improvements in transparency within government; present and former government officials are still involved in big business deals making public sector corruption an enduring challenge.
President Joko Widodo has made public sector corruption a focus of his term since being elected in 2014 on an anti-graft campaign, and inroads have been made according to Hogan Lovells.
“He (Widodo) has cut bureaucracy and with it the scope for corrupt interactions with government officials,” the report said. “That in turn has improved perceptions about how safe your investment in Indonesia will be.”
Thailand’s economy has seen significant growth in recent years due to the assistance of foreign direct investment, and this is likely to continue, but Hogan Lovells fear that the “country’s anti-corruption legal framework is struggling to keep pace.”
The rarity of corruption cases being brought shows that “actual enforcement (of the legislative changes) needs some improvement,” the report says.
Despite progress in developing its legislative framework, local enforcement that has been found lacking in the fight against corruption with some cases seemingly being pursued for purely “political motivations.”
Cases such as that of former prime minister Yingluck Shinawatra, who faces charges of corruption for her management of a rice subsidy scheme, hint at continuing tensions between the ruling military junta and the former Shinawatra political dynasty and the danger that corruption charges are being used to silence critics of ruling party.
There has long been a well-founded impression that corruption is a significant problem in Southeast Asia and often a major hurdle to doing business in the region. But as Hogan Lovells has found, 2016 saw some genuine and effective steps in the right direction that are “good news” for the region and business alike.
https://asiancorrespondent.com/2017...g-across-se-asia-despite-graft-higher-levels/
Indonesian Corruption Perceptions Index score compared to neighboring countries in last five years:
country 2016 - 2015 2014 2013 2012
Singapore 84 - 85 84 86 87; -3
Australia 79 - 79 80 81 85; -6
Malaysia 49 - 50 52 50 49; 0
China 40 - 37 36 40 39; +1
Indonesia 37 - 36 34 32 32; +5
Philippines 35 - 35 38 36 34; +1
Thailand 35 - 38 38 35 37; -2
Timor-Leste 35 - 28 28 30 33; +2
Vietnam 33 - 31 31 31 31; +2
Papua NG 28 - 25 25 25 25; +3
While we're still far from countries like Australia and Singapore, 5 points leap in five years is indeed encouraging while condition in most other countries are stagnant or even regressed.
China’s infrastructure boom could be a boon to Russia and Indonesia. Bloomberg News
As commodity prices stabilize, two developing countries should be winners: Russia and Indonesia.
Among major emerging markets, commodities as a percentage of exports are greatest in Russia, at roughly 70%, followed by Brazil (51%), India (35%), and Indonesia (35%), according to World Trade Organization data provided by Pavilion Global Markets. But India imports half of its commodities and food needs, and the rise in oil prices may weigh on its economy, as will the lingering negative of last fall’s rupee demonetization. And Brazil is still struggling with high interest rates and debt, as it recovers from a deep recession.
But stronger commodity prices should benefit Russia and Indonesia. Driving demand are two factors: The first is China, which could spend close to $800 billion over the next three years on transportation improvements alone. The second is the U.S,, which also is likely to undertake infrastructure projects that will drive commodity consumption.
Exports from emerging markets have risen over the past six months, helping to boost foreign currency reserves in half of them, says François Boutin-Dufresne, a global strategist at Pavilion, an independent research and brokerage firm in Montreal. He’s bullish on buying the MSCI Emerging Markets Index over the next three to six months. The iShares MSCI Emerging Markets exchange-traded fund (ticker: EEM) is up 11% this year.
BUT THE STRATEGIST IS ESPECIALLY ENTHUSED about Russia and Indonesia. And while he won’t name stocks, he says investors shouldn’t ignore the cheap emerging-market banking sector, especially in commodity-exporting nations. Banks account for more than a quarter of the emerging market index’s capitalization, and they’re relatively cheap. They trade at roughly nine times forward earnings estimates, versus 14 times for the rest of the index (excluding financials), and 17 times for the materials and construction sector.
Given rising U.S. yields, Boutin-Dufresne tells Barron’s, he finds these banks’ resilience “quite surprising” and that he expects them to benefit from inflows into emerging-market equities over the next three to six months.
As for Russia, it’s likely to emerge from recession this year with gross domestic product growth of 1.1%, as oil hovers near $50 per barrel. It has agreed to curb oil production through May, cooperating with the Organization of Petroleum Exporting Countries, though it’s not a member. Russia also is a big exporter of natural gas. Energy exports and central bank policy have shored up the ruble, and any détente between the U.S. and Russia would only help equities. U.S.-traded shares of Sberbank (SBRCY), one of this column’s picks for 2017, are up nearly 2% this year, and they remain attractive.
In Indonesia, expected 2017 GDP growth of 5.1% is among the highest in large emerging markets, thanks to exports of crude and palm oil, plus strong domestic consumption and a reform-minded government. As prices of exports rise faster than those of imports, the economy should benefit.
Indonesia’s central bank has been cutting interest rates, and its currency has shown strength against the dollar. That’s made its stocks more attractive than bonds, Boutin-Dufresne says. An easy way to play the country: the iShares MSCI Indonesia ETF(EIDO), which is reasonably liquid and has trailed the emerging markets ETF this year, rising about 2%.
http://www.barrons.com/articles/commodity-rebound-would-be-boon-for-russia-indonesia-1488000350
Indonesia seeks to boost exports to South Korea through AKC
The Trade Ministry has expressed its commitment to boosting trade with South Korea through the ASEAN Korea Center (AKC), which aims to achieve trade worth a total of US$200 billion by 2020. The commitment was made during the ninth council of the AKC in Seoul on Feb. 16-17.
“In this year’s work program, we’ve committed to partaking actively in the game exhibition in Busan. We’ll also hold a joint workshop on food for SMEs [small and medium enterprises] in Jakarta and Makassar,” said Ari Satria, the ministry’s secretary general for export development in a press statement on Friday.
The AKC is an inter-governmental organization supporting and improving cooperation among ASEAN countries and South Korea through people-to-people contact. For the January-to-November 2016 period, Indonesia enjoyed a trade surplus of $253.8 million through the facility, a notable improvement from a $669.42 million deficit in the same period in 2015.
Since ASEAN and South Korea cooperation started in 1989, Korea has become the fifth-biggest ASEAN trading partner. ASEAN is the second-biggest trading partner for South Korea according to ministry data.
“We hope to ride on the cooperation in the AKC to benefit Indonesia, in terms of increasing our exports,” Ari added. (ags)
http://www.thejakartapost.com/news/...boost-exports-to-south-korea-through-akc.html
Indonesia's state-owned manufacturing enterprises aim to go global
Indonesian economy is facing two intertwined problems: declining export share and declining manufacturing share. The exports-to-GDP ratio decreased from 34 percent in 2005 to 21 percent in 2015, the lowest since 1986. Over the same period, the manufacturing share of GDP declined from 27 percent to 21 percent, the lowest since 1988. These challenges have led the government under President Joko “Jokowi” Widodo to emphasize the importance of “production-driven economy” and exports of manufactured goods.
In this regard, Indonesia’s state-owned enterprises (SOEs) in high value added manufacturing sectors have recently shown impressive progress.In March 2016, railway company Industri Kereta Api (INKA) exported 15 train cars, the first batch of 150 train cars ordered by Bangladesh Railways; marking the first time INKA had exported passenger trains to a foreign country.
In May, the ship manufacturer PAL Indonesia completed its first warship export by delivering a strategic sealift vessel to the Philippines’ defense department; PAL is currently building a second warship for the same client.
In recent years, the state-owned weapons manufacturer Pindad has signed contracts with a range of countries including Laos, Nigeria, the Philippines, Thailand, and the United Arab Emirates. An airplane producer, Dirgantara Indonesia (DI), expanded its exports of multi-purpose aircrafts, called CN-235s, to Thailand and Senegal at the end of 2016.
According to these SOEs’business plans, the internationalization strategy has just begun. INKA aims to enter Egypt, Myanmar, Pakistan, Sri Lanka, and Thailand, and PAL Indonesia plans to penetrate Southeast Asia and the Middle East. Fueled by around 200 letters of intent for purchase from domestic and foreign airlines, DI is expected to start commercially manufacturing homegrown 19-seat commuter planes, called N-219s, in 2017.
Pindad is considering foreign direct investment and cross-border acquisitions and is already strengthening international partnerships to expand its global footprint.
The government provided Rp 7.7 trillion from the budget to the aforementioned SOEs from 2011 to 2016. The government made its first major investment in state-owned manufacturing firms since the Asian financial crisis in 2011–2012 to rekindle industrialization amid declining commodity prices. The second government investment was made in 2015–2016 as the government emphasized the importance of strengthening SOEs’global competitiveness.
The Indonesia Export Financing Agency, or Indonesia Eximbank, is also playing an important role in supporting SOEs’global activities. In 2015, Indonesia Eximbank was assigned a special mandate to support industrial upgrading and long-term export expansion through the National Interest Account (NIA) scheme.
Indonesia Eximbank’s provision of Rp 270 billion in export financing under this program contributed to INKA winning the international tender in Bangladesh. The government has also expressed the possibility of DI using the NIA scheme when exporting its airplanes in the future.
Moreover, the government’s economic diplomacy as one of Jokowi’s foreign policy priorities is helping SOEs to expand overseas. The government has instructed SOEs to prioritize entering non-traditional markets and using those markets as testbeds or stepping stones for implementing a wider globalization strategy. To support SOEs, the government has been actively searching for and engaging with developing economies that may currently be small but have long-term growth potential. Jokowi himself has enthusiastically promoted INKA’s products to Sri Lanka’s president and prime minister.
http://www.thejakartapost.com/acade...nufacturing-enterprises-aim-to-go-global.html
Anti-corruption improving across SE Asia, despite graft at higher levels
THE anti-corruption landscape throughout Southeast Asia is improving slowly but steadily, but often in spite of those in power, a report from Hogan Lovells has found.
The report from the global law firm, entitled Global bribery and corruption review 2016, found that despite improvements across the region, corruption is still prevalent at high levels in a number of the countries looked at.
Malaysia, Thailand and Indonesia are among the countries that, while having made progress to tackle corruption, have actually been held back in reputation or progress due to vested interests and actions by public officials and law enforcement.
This, however, is also showing signs of improvement with “increasing regulatory, commercial and political pressures” slowly bringing about increasingly effective anti-corruption legislation and enforcement.
Malaysia is still suffering the fallout from the 1 Malaysia Development Berhad (1MDB) scandal that saw the country’s reputation with investors suffer significantly.
The allegations surrounding Prime Minister Najib Razak accusing him of siphoning millions from the state investment fund, and the ensuing inadequate investigations that followed, have brought about a dramatic change in perception of the country’s ability to combat graft.
“It has made investors doubt whether there is any transparency in the country (at any level of government),” Hogan Lovells reports.
The impression of Malaysia on the world stage is that of a country “engulfed in corruption at the highest political level” and this is having a knock on effect on the economy and foreign investment.
Vietnam, was highlighted as one of the main problem areas in the region, ranking only 113th place (out of 176) in Transparency International’s Corruption Perception Index (CPI). Corruption is still a major issue according to Hogan Lovells, from “daily, low-level facilitation payments to high-level corruption scandals” with little domestic enforcement action being taken against government officials or the offending companies.
But Hogan Lovells feels that it is only a matter of time before this changes and the Vietnam anti-corruption authorities “wake up to the significant credibility and revenue deficit they face” as a result of not imposing strict punishments and sanctions for corrupt practices.
Indonesia on the whole is becoming more transparent, the report found, which is reflected in their dramatic rise in the CPI from 118th to 88th over a four year period. This was powered by efforts to create a “safe and sophisticated commercial environment” that is being managed by a more open central and regional government.
While there have been drastic improvements in transparency within government; present and former government officials are still involved in big business deals making public sector corruption an enduring challenge.
President Joko Widodo has made public sector corruption a focus of his term since being elected in 2014 on an anti-graft campaign, and inroads have been made according to Hogan Lovells.
“He (Widodo) has cut bureaucracy and with it the scope for corrupt interactions with government officials,” the report said. “That in turn has improved perceptions about how safe your investment in Indonesia will be.”
Thailand’s economy has seen significant growth in recent years due to the assistance of foreign direct investment, and this is likely to continue, but Hogan Lovells fear that the “country’s anti-corruption legal framework is struggling to keep pace.”
The rarity of corruption cases being brought shows that “actual enforcement (of the legislative changes) needs some improvement,” the report says.
Despite progress in developing its legislative framework, local enforcement that has been found lacking in the fight against corruption with some cases seemingly being pursued for purely “political motivations.”
Cases such as that of former prime minister Yingluck Shinawatra, who faces charges of corruption for her management of a rice subsidy scheme, hint at continuing tensions between the ruling military junta and the former Shinawatra political dynasty and the danger that corruption charges are being used to silence critics of ruling party.
There has long been a well-founded impression that corruption is a significant problem in Southeast Asia and often a major hurdle to doing business in the region. But as Hogan Lovells has found, 2016 saw some genuine and effective steps in the right direction that are “good news” for the region and business alike.
https://asiancorrespondent.com/2017...g-across-se-asia-despite-graft-higher-levels/
Indonesian Corruption Perceptions Index score compared to neighboring countries in last five years:
country 2016 - 2015 2014 2013 2012
Singapore 84 - 85 84 86 87; -3
Australia 79 - 79 80 81 85; -6
Malaysia 49 - 50 52 50 49; 0
China 40 - 37 36 40 39; +1
Indonesia 37 - 36 34 32 32; +5
Philippines 35 - 35 38 36 34; +1
Thailand 35 - 38 38 35 37; -2
Timor-Leste 35 - 28 28 30 33; +2
Vietnam 33 - 31 31 31 31; +2
Papua NG 28 - 25 25 25 25; +3
While we're still far from countries like Australia and Singapore, 5 points leap in five years is indeed encouraging while condition in most other countries are stagnant or even regressed.
