For his first international trip since becoming prime minister, Tony Abbott has taken 20 business leaders representing sectors such as banking, finance, agriculture and infrastructure to Jakarta, but super funds see better opportunities elsewhere in Asia.

Consultants, fund managers and superannuation funds say that the research has not been undertaken on Indonesia and there are better risk-return profiles in other regions.

Leading Indonesian fund manager Mandiri Investasi, whose representatives visited Australia in September on a promotional trip, identified government-backed infrastructure projects in power stations and railways as the best opportunities for super funds.

However, in a series of awkward conversations with representatives of the Australian investment industry, with many asking to be quoted off the record, it is apparent that Indonesia is not on the radar.

Leading consultants said China and India had better medium-term opportunities, that they preferred a general pan-Asian focus or that the amount of work involved was a deterrent.

One consultant, who was concerned about the custody issues and paperwork involved, said: “There is a lot more due diligence required, so that sort of investment becomes much more challenging.”

Another consultant, who did not wish to be quoted, said: “The reason we have not done the work on Indonesia is that we think there are much more attractive markets in Asia at the moment. There is concern around the political structure and the regulatory system in Indonesia. China and India are more advanced in working on this.”

A leading super fund said that its infrastructure policy was to focus on developed countries only, while fund managers had a similar story.

One leading infrastructure specialist, said: “Indonesia is near but people’s knowledge of it is fairly limited, bar the odd trip to Bali, and investors have got the whole world to choose from. An investment in Indonesia has got to stand out relative to options in Brazil, America or Europe.

“We have got people looking at Malaysia, Thailand, the Philippines and Indonesia, which have different stages of development risk, but it just depends on how they stack up.”

Despite this, John Donovan, Mandiri Investasi’s representative in Australia, said he was very confident that Australian funds would be investing in our Indonesian neighbour in the medium term, saying that there was significant interest in learning about the opportunities in infrastructure.

Muhammad Hanif, a director of Mandiri Investasi, contrasted the reticence of Australian investors compared to those from the USA, Europe, China, Japan and Singapore, who make up the biggest foreign investors in Indonesia.

An overview of Indonesia published by the World Bank contains the following statements.

The investment climate, though still positive, may also be impeded by regulatory uncertainties, shortcomings in infrastructure provision and adjustments in minimum wages.

Employment growth has been slower than population growth. Public services remain inadequate by middle-income standards. Indonesia is also doing poorly in a number of health and infrastructure-related indicators and, as a result, may fail to reach some Millennium Development Goals.

 

One comment on “Indonesia last destination for funds”
  1. While the big super funds may not have been investing in Indonesia directly themselves, they will have had exposure to Indonesian equities via emerging markets or Asian mandates. Until earlier this year Indonesia was the best performing market in the MSCI Asia ex Japan Index since 1991. The latter has also outperformed the MSCI World Index since 1991.

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