Gleaming Prospects in Indonesia

Indonesia, an archipelago nation rich in resources and home to over 270 million people, is poised to embark on a new era under the leadership of Prabowo Subianto and Gibran Rakabuming Raka. 

This fresh administration ushers in a wave of enthusiasm for achieving the ambitious targets set out in the 'Golden Indonesia 2045' vision, aiming to boost the country's real GDP by 6-7% over the next five years.

One of the strategic steps being taken is to reduce dependence on government capital expenditure, which has historically been known for its inefficiency.

In its place, the government is inviting more investment from the private sector, which has historically shown a greater contribution to economic growth.

Source: Sucor Research

This approach is evidenced by the period from 2008 to 2014, during which the average real GDP growth reached 5.6%. In contrast, from 2014 to 2023, the average growth slowed to just 4.1%, driven largely by government spending.

Source: Bloomberg

If the focus shifts towards private investment, here are a couple of sectors that look promising:

Financial Sector: With a strategy that increases reliance on debt financing up to 70%, the financial sector, particularly banks and multifinance institutions, is expected to see a surge in demand for credit and other financial services. 

Consumer and Property Sector: An increase in consumer purchasing power is anticipated to boost growth in these sectors, not just in terms of sales but also in the development of real estate and consumer infrastructure. 

Technology Sector: The increase in digital adoption, cybersecurity enhancements, and artificial intelligence implementation are set to enhance business operations and open up new opportunities in e-commerce and technology services. 

Infrastructure Sector: With total investments reaching USD 750 bn from 2015 to 2024, this sector is expected to lead in the renewal and development of new infrastructure to support economic growth and mobility. 

Of all these sectors, let's look at the banking sector.

Over the last decade, the total credit issued by banks in Indonesia has reached IDR 7,000 tn, with a credit penetration ratio below 40% of the GDP. 

The growth in credit within the banking sector has seen a significant slowdown, with a CAGR of only about 10% over the past decade, excluding the impact of the COVID-19 crisis. This is considerably lower compared to the 22% growth from 2008 to 2014.

Source: Sucor Research

This slowdown represents a potential area for growth. With economic growth projections that require an annual credit increase of 20%, the credit portfolios of major banks could potentially double in less than four years, promising significant growth in net profits.

Foreign investments that have already been made in major stocks such as BBRI and BMRI position them as prime choices for the coming year.

This potential revaluation for both BMRI and BBRI is underpinned by expectations of a significant improvement in their ROAE from their historical averages of around 15% and 17%.

Source: Sucor Research

However, it's not just these two stocks to consider; we have a list of our top 10 shopping stocks that you might consider for your investment portfolio.

Source: Sucor Research

For the full report, please check our report.