Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
Speaker: Thanks for listening.
Speaker: And now onto today's show.
Speaker: This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify.
Speaker: However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Speaker: Hello from Hong Kong and welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
Speaker: I'm your host, Harold van der Linde, Head of Asia Equity Strategy at HSBC.
Speaker: And today we'll be focusing on a sort of regional up and comer on a number of fronts, economics, commerce, demographics and the markets as well, all part of the vibrant growth story that is Indonesia.
Speaker: Joining me here in the studio is my fellow equity strategist and demographics guru, Prun Agar.
Speaker: And we've also got the pleasure of welcoming Joy Wang, our head of ASEAN equity space in Singapore.
Speaker: Plenty to discuss and I promise I'll try to keep the temple references to an absolute minimum.
Speaker: Let's get the conversation started right here under the banyan tree.
Speaker: Let's start with some customary facts and figures to frame our discussion.
Speaker: Indonesia is a young country, not in the sense that it's not been around, in the sense that 50% of the population are either millennials or Gen Z, and clearly I am definitely not a member of that generation.
Speaker: On the stock market front, it was the hottest IPO market on the planet for almost all of the first half of 2023, with more companies going public in Indonesia than anywhere else, even including Hong Kong or New York.
Speaker: It's also a country that's looking to the future with high urbanization rates and a lot going on in terms of infrastructure.
Speaker: In fact, around 1,800 kilometers of toll roads have been built all across the country since 2014.
Speaker: Now it's time to bring in my guest, Joy and Pruna.
Speaker: Ladies, thank you very much for joining me here on the podcast.
Speaker: Thank you for having me, Harul.
Speaker: Thanks for having me, Harul.
Speaker: Fantastic.
Speaker: Joy, we're looking at the Indonesian stock market.
Speaker: So let's take a step back before we delve into some of the technicalities of this market.
Speaker: How does this stock market look like?
Speaker: What are the key stocks and sectors in Indonesia?
Speaker: Sure.
Speaker: I think if you look at the Ingo stock market, this is still very concentrated in a few sectors, especially financials.
Speaker: Banks still account for over a third of the market, and that's followed by consumer sectors and the telco sectors.
Speaker: But I think what's interesting is over the last sort of 10 years, we've seen a doubling of stock listed in Indonesia, and a lot of the new sectors, especially e-commerce, are being introduced, and we've also seen fintech,
Speaker: We've seen battery companies and mining companies.
Speaker: So all these are adding to the vibrancies of the indoor stock markets.
Speaker: And there's a lot of young investors that go into Indonesian equities, right?
Speaker: Yeah, for sure.
Speaker: I think all these new economy sectors are getting the interest from the young populations.
Speaker: And I think that's also helping the liquidity of the market, which puts it now at second or third in the ASEAN market right after Thailand.
Speaker: Good, good.
Speaker: So it's banks, it's consumers, it's e-commerce.
Speaker: It means we need to get a bit of a better understanding of who this Indonesian consumer is.
Speaker: And for that, we have Prona.
Speaker: Prona, you've done some work on the Indonesian demographics, right?
Speaker: Give us a quick rundown of how that looks like.
Speaker: So, Harold, the population in Indonesia is large and young.
Speaker: So, Indonesia is the fourth most populous country in the world, the most populous in ASEAN, and the median age of the population there is around 30 years, which makes it one of the younger countries in the world.
Speaker: One interesting thing about Indonesia is that the working age population is rising faster and the old age dependency, the number of old age population, this working age population has to take care of.
Speaker: It's still low.
Speaker: So aging is not a big concern yet.
Speaker: And this gives the households more flexibility to spend on discretionary.
Speaker: When it comes to literacy, Indonesia has made a big progress and the gender here doesn't impact the literacy rate.
Speaker: Indonesia has actually achieved gender parity when it comes to literacy.
Speaker: However, even though women are as educated as men in Indonesia, still their contribution to labor force, that is the labor force participation, is much lower.
Speaker: Only a little over 50% of women in Indonesia are actually employed.
Speaker: So you're saying it's a young population, aging is not really something we need to think about.
Speaker: Women get the same sort of education as men in Indonesia, and they're working more, but not as much as men yet.
Speaker: How does the households look like?
Speaker: Are they getting smaller?
Speaker: For now, in general, women, they get married early and they have a higher number of children.
Speaker: But over time, we've seen that these households are becoming smaller.
Speaker: The fertility rates are coming down.
Speaker: And with this fertility rates coming down, I think in general, women are able to find more time to work.
Speaker: And we see that they are increasingly participating in the working populations.
Speaker: That would suggest that these houses have a bit more money and therefore have a bit of room to do a bit of luxury spending or upgrade their spending patterns.
Speaker: And as per the analysis we've done, by 2030, Indonesia is going to be the fourth biggest consumer group in the world and it'll overtake Brazil to be the bigger population.
Speaker: So India, China, the US and the next, Indonesia's consumer markets.
Speaker: So that should be interesting for a lot of companies that want to go into these markets.
Speaker: Pruna, in the past, Jakarta seemed to dominate economic life in Indonesia, and that's the capital of the country, right?
Speaker: That seems to be changing, is that right?
Speaker: That's right.
Speaker: So in the past, Jakarta or the broader Java island has been the center of economic growth.
Speaker: More than half of the economic activity or more than half the population resides on this island.
Speaker: And a lot of that has to do with the stagnant infrastructure spending that has gone into Indonesia in the last couple of decades.
Speaker: Mm-hmm.
Speaker: However, in the last few years, with government getting more focused on spending on infrastructure, we've seen that other islands, other smaller islands around Java, they are picking up.
Speaker: A good example here could be Sulawesi.
Speaker: That is one of the regions that was long dependent on fishing.
Speaker: But at the same time, it had rich resources of nickel.
Speaker: And in last few years, we've seen a lot of companies or FDI coming in Sulawesi.
Speaker: Nickel is for the battery companies.
Speaker: Yes.
Speaker: And with that, companies with exposure to nickel or steel, they have started activities on this island.
Speaker: And with this, their contribution to Indonesia's export is rising.
Speaker: So we feel in years to come, more economic activity is going to come from islands outside Java than being concentrated on the capital of Jakarta.
Speaker: That's good, good.
Speaker: Harold, in fact, you often travel to Indonesia over years.
Speaker: Have you seen any visible changes when it comes to, say, constructions or infrastructure in the country?
Speaker: Absolutely.
Speaker: I think actually Indonesia has come a long way and it doesn't only get credit for it.
Speaker: by foreign investors sometimes, but also by Indonesians themselves.
Speaker: Indonesians complained about the traffic that's really bad.
Speaker: I used to live there in the 90s.
Speaker: I think the traffic was even worse because they were just building out the ring roads that go around Jakarta.
Speaker: Now they have the ring roads, but they also have a subway system, for example, built out.
Speaker: What is really important is that Indonesia, as large parts of Asia, went through the Asian financial crisis in 1997-98, and that meant a complete reset.
Speaker: It meant, for example, that the political system changed, a president had to step down, a new president came in and became a democracy.
Speaker: Quite a vibrant democracy.
Speaker: It's one of the most vibrant democracies probably in Asia at the moment.
Speaker: But also the banks had to clean up their, literally their balance sheets.
Speaker: They look much cleaner now.
Speaker: But yeah, that came with a cost for about, say, 10 years.
Speaker: They didn't really have the money to really invest in infrastructure as they were.
Speaker: they would have liked to do that only came say over the last as you mentioned the last 10-15 years or so and the benefits of that are coming out so it really that it led to a reset that was positive but also a delay in you're building out much required infrastructure across across the nation but hey the benefits of that are coming through now now as we've said Indonesia has a young population and rising spending power
Speaker: After the break, we're going to bring Joy back in to tell us how that's impacting sectors across the market.
Speaker: Joy, let's first look at one sector.
Speaker: You mentioned that the banks are really a big sector in the Indonesian market.
Speaker: What's going on there?
Speaker: Yeah, sure.
Speaker: So, Hera, as you rightly mentioned, they've done a round of clean-out.
Speaker: So I think the banks are now back into the growth mode.
Speaker: We see very robust loan growth driven by the investment in the infrastructure, along with all the new business setups.
Speaker: I think what's also interesting is because half of the population is unbanked in this country.
Speaker: So I think there's a lot more potential, you know, room for banks to penetrate.
Speaker: Alongside the digital bank actually also help with the financial inclusion.
Speaker: So yeah, we're seeing very strong growth momentum in the sector.
Speaker: Wow.
Speaker: So there's about 100 million people in Indonesia that still don't really have access to basic banking services.
Speaker: So that must be a good growth theory for these banks.
Speaker: I can understand that.
Speaker: So then let's look at the consumer market.
Speaker: Are these consumers really trading up or is that not really happening?
Speaker: What's going on there?
Speaker: Yeah, well, in the past, when we talked about consumer market, we often talk about noodle consumptions.
Speaker: I mean, that's still there.
Speaker: Quite tasty stuff, by the way.
Speaker: I know.
Speaker: I still have my weekly fix of that.
Speaker: But, you know, beyond that, we are now seeing a lot more premium consumptions and discretionary consumptions.
Speaker: and trading up and getting Starbucks consumptions and on the spots where you have sketches, all these trading ups are happening in the country and consumers are very confident in terms of spending in the country.
Speaker: In fact, we've done some survey recently
Speaker: And we've actually seen a gradual pickup in consumers' confidence.
Speaker: And more of them are saying that we're going to spend more in the coming year, and they're expecting to earn more as well.
Speaker: An interesting side story, I guess, for Indonesia is that
Speaker: as people become richer and have made a bit more money, just like Perna said, some of these factories move into, say, central Java or Sulawesi and employment opportunities rise, one area where they want to spend off is a trip to Mecca because a lot of them are Muslims, of course.
Speaker: So they initially have to go over that particular expense.
Speaker: It's called Umrah.
Speaker: And then when that is out of the way, then you can say, OK, I've done that.
Speaker: Now I can buy my luxury item or car or anything like that.
Speaker: Correct, right?
Speaker: Oh, you're right.
Speaker: Actually, car four-wheeler sales have also been quite strong, and we are now revisiting the 1 million numbers in the country.
Speaker: So definitely, yeah, confidence is back in the country.
Speaker: Good.
Speaker: So it's underbanked.
Speaker: The consumer is kind of upgrading.
Speaker: This must be fantastic news for e-commerce, right?
Speaker: Because Indonesians are avid users of all sorts of social media.
Speaker: So e-commerce platforms must be...
Speaker: But I believe the share prices of these sectors have really come down a lot, right?
Speaker: As a consumer, it's fantastic news because we have a lot of e-commerce players in the market.
Speaker: In fact, because of the demographic attributes, the growth that companies are seeing in the market, we see a lot of players.
Speaker: You have Shoppies, you have Lazada, and lately you have all the Chinese e-commerce companies actually going into this country.
Speaker: They're quite active there as well.
Speaker: Yes, that's right.
Speaker: And, you know, TikTok, and we've seen TikTok actually dominating the headlines in the country at the moment.
Speaker: But having said that, what it also resulted is competitions.
Speaker: So we've seen very intense competition in the market, which is why the stock are actually not doing as well.
Speaker: Because these e-commerce platforms have to give out discounts just to attract new customers, right?
Speaker: Yes.
Speaker: Yeah.
Speaker: Yeah.
Speaker: You see that more often.
Speaker: Okay, so a vibrant market.
Speaker: There's a lot going on.
Speaker: Very interesting.
Speaker: Interesting sectors.
Speaker: Some of them, as you mentioned, Joy, that have just recently emerged and have been listing.
Speaker: So this market is broadening.
Speaker: So, yeah, no wonder a lot of people are paying attention to Indonesian equities these days.
Speaker: So Joy, this is all positive, but are there any risks that we need to be aware of?
Speaker: The elections are coming up next year, so are there any concerns that we should know regarding the elections?
Speaker: Yeah, sure.
Speaker: So as you rightly point out, elections coming up.
Speaker: So in the meantime, I think there is a little bit slowdown in terms of momentum.
Speaker: And we do need to see how election eventually pan out.
Speaker: We don't think there's significant change in terms of direction of where the country is heading, though.
Speaker: But I think what we're also seeing is intensifying competitions.
Speaker: Indonesia being such an interesting market and high growth market, they're definitely attracting a lot of competitions.
Speaker: As what we've seen in the e-commerce market, you know,
Speaker: The Chinese are going in and the Western e-commerce platform are also in the market.
Speaker: We could see that in other sectors, including consumers.
Speaker: We are seeing a lot of new consumer brands going into the country, which could intensify some of the competition.
Speaker: But as a consumer, I think that's great news.
Speaker: A lot more options, a lot more products to consume.
Speaker: Well, Joy, fantastic.
Speaker: Thanks for these insights.
Speaker: Pruna as well.
Speaker: It seems like it's a really interesting story, but because it's such a great story, everybody wants to be part of it.
Speaker: And that might actually be where the risks are in the sense that these margins, these profit margins and the competition intensifies these profit margins are coming down.
Speaker: a little bit.
Speaker: Of course, there's a big mining sector as well.
Speaker: Indonesia is now for the first time really integrated with the rest of the world through the nickel supplies, in particular in Sulawesi.
Speaker: So, yeah, there's a lot going on in this interesting market and I suspect we're going to revisit it over time again under the Benya tree.
Speaker: Well, folks, anyone who knows me knows that I would love to spend a whole day talking about Indonesia, in particular, Javanese temple architecture and things as such, given half a chance.
Speaker: But I'm told we need to really wrap things up here.
Speaker: And I promise you not to talk about Japanese temples anyway.
Speaker: Thanks again to my guests Prunagak and Joy Bank for bringing their insights to the podcast.
Speaker: And of course, all our listeners for streaming and subscribing.
Speaker: Do also remember to listen to some of the other podcasts that we have, such as the Macro Brief and the ESG Brief.
Speaker: And tune in again, same time next week, where we will be putting Asian markets and economics in context once again.
Speaker: From all of us in Hong Kong and Singapore, take care and talk to you next time.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
