Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Under the Banyan Tree - Indonesia: From ancient temples to the modern consumer
13 Plays2 years ago
With Herald in Indonesia this week, he and Fred discuss the fabric of an economy that's tipped to be a leading consumer hub in the next decade. Selviana Aripin, Head of ASEAN Consumer Research, joins our hosts to discuss key trends in the country. Disclaimer. To stay connected and to access free to view reports and videos from HSBC Global Research click here
Hosted on Acast. See acast.com/privacy for more information.
Recommended
Transcript
Introduction to HSBC Global Viewpoint
00:00:00
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.
00:00:11
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:14
Speaker
Thanks for listening.
00:00:15
Speaker
And now onto today's show.
00:00:16
Speaker
This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify.
00:00:22
Speaker
Search for HSBC Global Viewpoint or join us via the HSBC Global Banking and Markets page on LinkedIn.
00:00:29
Speaker
However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Focus on Indonesia: Key Economic Drivers
00:00:45
Speaker
Hello from Hong Kong, I'm Fred Newman, Chief Asia Economist at HSBC.
00:00:49
Speaker
And I'm Harold van der Linde, Head of Asian Equity Strategy at HSBC, coming to you from Indonesia, which is very much the focus of today's podcast.
00:00:57
Speaker
That's right, it's the world's fourth most populous nation, spans an eighth of the globe and is tipped to soar up the global economic rankings in years to come.
00:01:06
Speaker
It's a story of infrastructure, commodities, and a rather unique consumer market, something we will be discussing with our RZN consumer analyst, Selvijana Aripin, a little later on the show.
00:01:18
Speaker
That more coming up here on The Bond Entry.
00:01:33
Speaker
So, Harold, you're actually in Indonesia right now.
00:01:35
Speaker
Where exactly are you?
00:01:38
Speaker
I'm back in Jakarta today.
00:01:39
Speaker
I was for the last couple of days in a city called Kuningan in West Java.
00:01:44
Speaker
There's a couple of things that bring me here.
00:01:45
Speaker
First of all, we had a family reunion over the weekend.
00:01:49
Speaker
Something like 150 people or so gathered in a town a couple of hours outside of Jakarta.
00:01:54
Speaker
And I'm going to have a holiday over the next couple of weeks.
00:01:56
Speaker
And one of my new topics of interest, stuff that I want to learn about, is the Majapahit era, which is an old Indonesian kingdom from the 13th century.
00:02:05
Speaker
So I'm going to go to East Java and visit some of the temples that are still there and meeting with some archaeologists who hopefully can really fill me in on that time frame, the birth of modern Indonesia, as you could call it.
00:02:18
Speaker
It sounds like an exciting holiday, but you're shuttling around Java.
00:02:22
Speaker
Are you stuck then in traffic most of the time during your holidays?
00:02:26
Speaker
Yeah, normally if you go around Java and you go, for example, like to Kuningan where we have our family reunion, you've got to basically calculate that you're going to be stuck in traffic for quite a few hours.
00:02:38
Speaker
In the 90s, when I went there for the first time, when I just met my wife at the time, it took us about seven hours to get there.
00:02:44
Speaker
But the good thing is that there's now a new highway.
00:02:47
Speaker
So...
00:02:48
Speaker
As soon as you get onto the highway, it's only a few hours.
00:02:51
Speaker
So to my surprise, this morning when we drove back, it took us about three and a half hours.
00:02:56
Speaker
Now that's a way down from the, as I mentioned, seven hours in the nineties.
00:02:59
Speaker
And my wife told me that in the seventies, it was nine hours.
00:03:03
Speaker
And there's also a new Metro, I think in Jakarta itself.
00:03:06
Speaker
Have you, have you taken that Metro yet?
00:03:09
Speaker
Yeah, I've taken that one already and I'm going to take it tomorrow as well.
00:03:12
Speaker
So I'm currently in Southern part of Jakarta where my family lives.
00:03:16
Speaker
I need to go to the center of Jakarta, so I'm going to take a taxi to an area called Lebakbulus, and from there on you can take the metro in.
00:03:23
Speaker
I understand you've got to wait maybe 10 minutes for every metro to arrive, but beyond that, it's rather comfortable, actually.
00:03:30
Speaker
So it's interesting to hear that a lot is changing on the ground when it comes to infrastructure.
00:03:35
Speaker
You really can feel that, you know, being there right now.
00:03:39
Speaker
It really fits into the broader context.
00:03:41
Speaker
growth agenda of what the president has delivered in recent years, which is focusing on infrastructure, especially a lot of the transportation connections in Java, but of course,
Indonesia's Global Economic Role
00:03:54
Speaker
ports as well.
00:03:54
Speaker
There is a high-speed rail line.
00:03:56
Speaker
Have you seen any signs of that coming to fruition?
00:04:00
Speaker
Yeah, that high-speed rail line is currently under construction.
00:04:04
Speaker
That is definitely one of the kind of bigger projects that they have.
00:04:08
Speaker
But the other projects that they had were harbors fret.
00:04:10
Speaker
And that means they can get commodities in and out.
00:04:13
Speaker
And infrastructure has been a key driver of the economy, but I think commodities as well, right?
00:04:17
Speaker
Yeah, exactly.
00:04:18
Speaker
Expanding the harbors, of course, key to bring all these commodities to market.
00:04:23
Speaker
And Indonesia is one of the key suppliers of various commodities in the world, coal being one of them.
00:04:31
Speaker
Palm oil, of course, is another big one.
00:04:34
Speaker
Natural gas, actually, they're exporting that as well.
00:04:37
Speaker
And then you have a whole range of other types of commodities like nickel, for example.
00:04:41
Speaker
But here, actually, the strategy is to move into other areas to kind of add more value, not just to export the raw ores, but really to process this.
00:04:52
Speaker
And electric vehicle batteries, for example, are a key part of this.
00:04:57
Speaker
Is that something that you've picked up on the equity side?
00:05:00
Speaker
Yeah, indeed.
00:05:01
Speaker
I mean, it's not that there are listed companies who do this, but there are listed companies that make nickel.
00:05:06
Speaker
They don't make the batteries.
00:05:07
Speaker
But if you look at the global battery food chain, Indonesia suddenly becomes a very big part of that.
00:05:14
Speaker
It is the largest producer of nickel on the planet.
00:05:17
Speaker
And nickel you need in these batteries.
00:05:18
Speaker
So suddenly all sorts of electric vehicle companies from Korea, from the US, from China have gone into Indonesia and said, we need to invest there.
00:05:26
Speaker
And just rightly, as you say, so build up.
00:05:29
Speaker
capacity to make some of these batteries.
00:05:32
Speaker
And I suspect that has got some
00:05:33
Speaker
beneficial impact on the current accounts for Indonesia.
00:05:36
Speaker
That's right.
00:05:37
Speaker
Actually, right now, Indonesia has barely a trade deficit.
00:05:40
Speaker
In fact, it runs quite sizable surpluses in various months.
00:05:45
Speaker
And that's giving the economy a lot of macroeconomic stability.
00:05:50
Speaker
We're always used to Indonesia looking a little bit shaky when the Federal Reserve tightens monetary policy, famously during the taper tantrum several years back.
00:06:00
Speaker
But currently, during this tightening cycle by the Fed, Indonesia looks much more stable, in part because that strong trade position that the country has helps to anchor the balance of payments.
00:06:14
Speaker
And therefore, there's a real macroeconomic anchor here because of high commodity prices and these exports.
00:06:21
Speaker
But the question is then, from an equity market perspective, is that also reflected in the earnings that we see across the market?
00:06:30
Speaker
Yeah, I would say so.
00:06:31
Speaker
So earnings growth in Indonesia is actually fairly robust.
00:06:35
Speaker
Indonesia is one of the fastest growing markets across the region this year, for example, after the Philippines, it's the second fastest growing market in Asia.
00:06:45
Speaker
So robust earnings growth, but it's not just that the macro is good.
00:06:49
Speaker
I think there's something else going on as well.
00:06:51
Speaker
What we've seen in certain industries in Indonesia is that there is industry consolidation taking place.
00:06:57
Speaker
So we see this in the telecom industry, for example.
00:07:00
Speaker
But some other industries as well, some of the leaders are really taking over.
00:07:04
Speaker
That gives them pricing power.
00:07:06
Speaker
And what about the tech space?
00:07:08
Speaker
Last year, there was, I think, a lot of inflows into Indonesia's burgeoning tech sector.
00:07:15
Speaker
Indonesians are using their mobile phones to order food.
00:07:19
Speaker
It's a huge sector growing.
00:07:21
Speaker
FinTech is playing a role here.
00:07:23
Speaker
Is the tech sector really a growing space in the listed universe?
00:07:28
Speaker
Absolutely.
00:07:29
Speaker
And one of the nephews that I met on my family reunion is currently interviewing for a job at some of these tech companies.
00:07:38
Speaker
Another one just got a job there.
00:07:40
Speaker
So it seems like these tech companies are still growing and taking off talent from the universities.
00:07:45
Speaker
But some of these Indonesian tech companies are homegrown, larger tech companies that have really emerged, have listed on the stock exchange and now belong to some of the largest companies
00:07:56
Speaker
in the Indonesian stock market.
00:07:57
Speaker
So it changes the dynamics of these Indonesian stock markets as well.
00:08:02
Speaker
So that's a real positive development for this market.
Consumer Market Trends in Indonesia
00:08:06
Speaker
And then another promising sector must be household consumption.
00:08:10
Speaker
Now, there are over 270 million Indonesians spread across 13,000 islands.
00:08:16
Speaker
It's a huge consumer market, the largest actually in Southeast Asia, very young population growing very fast.
00:08:24
Speaker
How do we tap into this consumer market?
00:08:27
Speaker
Is that a promising investment proposition?
00:08:31
Speaker
I believe so.
00:08:32
Speaker
I mean, you're right.
00:08:34
Speaker
This is a large consumer market, the largest in ASEAN, and some studies believe that by the end of this decade, it could be the fourth largest consumer market on the planet.
00:08:43
Speaker
So this is a market that should not be ignored.
00:08:46
Speaker
And there are multiple ways to get exposure to the Indonesian consumers.
00:08:50
Speaker
There are staple companies, and they sell food.
00:08:53
Speaker
Think about milk and bread and noodles and these sort of things.
00:08:56
Speaker
There are companies that sell motorcycles or cars.
00:09:00
Speaker
There are mall operators, they're luxury companies.
00:09:03
Speaker
So there's a wide range of companies actually listed.
00:09:05
Speaker
And indeed, you can also get exposure to the Indonesian consumer by thinking about the tech companies that we mentioned earlier on, because there are online platforms that sell all kinds of stuff and deliver stuff to people across the whole archipelago.
00:09:19
Speaker
So we should probably look a little bit deeper then at that sector and bring in our expert, Salviana Aripin, who's actually our ASEAN consumer analyst and hails from Indonesia.
00:09:40
Speaker
Welcome, Silviana, to Under the Banyan Tree.
00:09:43
Speaker
Well, Harold, thank you for having me.
00:09:45
Speaker
So COVID has had a tremendous impact on consumer demand over the last couple of years.
00:09:50
Speaker
And across the region, we've seen wild swings in consumer spending.
00:09:54
Speaker
Some of the countries across the region seem to getting out of this.
00:09:56
Speaker
Is this also the case for Indonesia?
00:09:59
Speaker
Well, it's somewhat of a mixed bag, Harold.
00:10:02
Speaker
I think some consumer companies have recovered faster than others.
00:10:07
Speaker
take the case of companies whose target market is the mid-to-mid-upper segment of the consumers, these type of companies tend to recover faster than other companies whose target market is the mass market.
00:10:22
Speaker
We also observe
00:10:24
Speaker
for companies that cater to consumer health needs, particularly COVID-related needs.
00:10:30
Speaker
They have never had a down year in 2020, in 2021, because consumers are very keen in making sure that they are in tip-top health condition.
00:10:42
Speaker
And now that the economy is reopening, some of these companies are starting to see revenue being slightly weaker than what they used to be in 2020 and 2021.
00:10:56
Speaker
So it's somewhat of a mixed bag.
00:10:59
Speaker
So, Viana, we've seen a lot of inflation across Asia, including actually in Indonesia.
00:11:05
Speaker
How does the Indonesian consumer deal with inflation, rising living costs, food prices in particular rising?
00:11:12
Speaker
How does that impact consumer spending in the country?
00:11:16
Speaker
So, I think that's quite a tricky situation because what happened was we started the year 2022.
00:11:26
Speaker
with a very low increase in wage growth.
00:11:30
Speaker
We are talking about probably low single digits level at the beginning of the year.
00:11:35
Speaker
And then starting February or March, we see a pickup in inflation.
00:11:40
Speaker
And we saw that customers started to prioritize primary needs, particularly around food.
00:11:49
Speaker
Now, the issue is currently not only are we seeing consumers prioritizing food products, the economy is also starting to reopen.
00:11:58
Speaker
And that means that school is back to in-person lessons.
00:12:02
Speaker
And so there are additional costs associated with attending schools in person, such as, for example, making sure that the kids are safe.
00:12:10
Speaker
presentable with uniforms that fit them, preparing a proper lunchbox.
00:12:16
Speaker
So we see that consumers are actually prioritizing these needs ahead of other more discretionary spending.
00:12:26
Speaker
Now, going into next year, we expect the situation to improve with wage increase.
00:12:34
Speaker
And it should be higher next year in 2023, considering that we expect GDP to rebound in 2023.
00:12:42
Speaker
And now the inflation is higher, wage increase should be better going into next year.
00:12:48
Speaker
But between, I think, right now and next year, there's still a few more months to go.
00:12:53
Speaker
And unfortunately, living costs may not come down fast enough.
00:12:57
Speaker
And as a result of that, we are seeing some pressures on consumer companies going into second half of 2022.
00:13:06
Speaker
Selfiana, Indonesians are avid users of social media, probably more so than other Asian consumers even.
00:13:14
Speaker
How does that impact the way they shop and where they shop and what they buy?
00:13:18
Speaker
Yeah, so we saw that some companies have started engaging customers by allowing them to pick up goods in store.
00:13:26
Speaker
That's what they call the click and collect function.
00:13:30
Speaker
They also allow customers to order through some sort of a chat channel.
00:13:36
Speaker
That refers to functions such as WhatsApp chat.
00:13:41
Speaker
They also allow for the delivery of goods to customers.
00:13:45
Speaker
So there are actually several ways that brick and mortar players evolve along with the recent development in consumer behavior.
00:13:55
Speaker
Silviana, a classic indicator for consumer spending in Indonesia is two-wheeler demand or motorcycle demand.
00:14:01
Speaker
And how has that been doing of late?
00:14:03
Speaker
Have we seen a pickup in motorcycle sales across the archipelago?
00:14:07
Speaker
Is there signs that consumers are more confident, have more purchasing power now?
00:14:13
Speaker
Yeah, I think if we look at motorcycle demand year to date,
00:14:17
Speaker
it's still down.
00:14:19
Speaker
It declined by about, I think, 9%, 10% so far this year.
00:14:24
Speaker
But that's not from a lack of demand.
00:14:26
Speaker
The issue is a supply-side issue rather than a demand-side issue.
00:14:32
Speaker
And at HSBC, we actually expect the demand to pick up in the coming months.
00:14:38
Speaker
I think another interesting point to note is probably the demand around four-wheelers.
00:14:44
Speaker
Demand for four-wheelers
00:14:46
Speaker
have been very strong since the beginning of the year.
00:14:51
Speaker
And this is probably indicative of the fact that the economy is recovering, people are more willing to spend on a new vehicle.
00:15:00
Speaker
One last question, Silviana.
00:15:02
Speaker
You've done some surveys, consumer surveys in Indonesia before COVID and after COVID.
00:15:08
Speaker
Well, no doubt there are some differences there, but can you maybe run us through some of the shifts that we've seen in consumer spending and consumer behavior over the last couple of years?
00:15:17
Speaker
Yeah, I think as you are aware, a lot of things have changed before and after COVID.
00:15:24
Speaker
For example, some types of expenses
00:15:27
Speaker
got cut while others saw an increase.
00:15:31
Speaker
So, for example, during COVID, people cut their spending on things like vacation and clothing and apparel, particularly those that's fashion related.
00:15:43
Speaker
But some other things, some other expenses such as vitamins and personal care and telco spending have seen an increase.
00:15:53
Speaker
I think what is also interesting is that when customers cut spending, customers tend to cut spending both online and offline.
00:16:04
Speaker
And when they are ready to spend again, the online spending tend to increase a lot more than the offline.
00:16:12
Speaker
That's one of the observations that we make at the beginning of COVID outbreak.
00:16:18
Speaker
The other thing as well that is worth mentioning is the willingness to pay for delivery fee.
00:16:25
Speaker
In the early part of e-commerce rollout, people were somewhat unwilling to pay for delivery fees in Indonesia, but over time that willingness grew and we expect this willingness to be somewhat sticky over the next few years.
00:16:50
Speaker
Harold, that was interesting what Silviana just said generally, but also specifically about how a demand for motorcycles in Indonesia is actually quite strong, but sales are not keeping up because there are supply side issues and there are just not enough motorcycles around to be sold.
00:17:07
Speaker
Well, what I found interesting is that she was talking about e-commerce.
00:17:12
Speaker
Indonesians, as we mentioned earlier on, they're very often stuck in traffic.
00:17:15
Speaker
They're eager consumers of all sorts of social media.
00:17:18
Speaker
And I can see that's
00:17:20
Speaker
not by stretch of imagination, that therefore there would be large consumers of anything that is online on offer as well.
Travel Anecdotes and Podcast Conclusion
00:17:26
Speaker
But Harold, we're not just here to talk about markets and economics, but also generally what's on our mind.
00:17:32
Speaker
And you're traveling now in Indonesia.
00:17:34
Speaker
What's the plan here?
00:17:36
Speaker
Well, I'm going to take the train from Jakarta to Surabaya.
00:17:39
Speaker
So one of the things on my mind is just to make sure that I got the right train tickets.
00:17:43
Speaker
But what is really on my mind is I'm going to holiday in East Java.
00:17:48
Speaker
visiting those temples.
00:17:49
Speaker
So I'm making my way through a book on Eastern Javanese temple art and history.
00:17:54
Speaker
It's kind of a quiet taste, I can see.
00:17:57
Speaker
Not everybody would be reading it, but I find it quite fascinating.
00:18:00
Speaker
And you, Fred, what is on your mind?
00:18:03
Speaker
Well, I'm dealing with more prosaic travel issues heading to Europe, actually.
00:18:07
Speaker
And we're worried about losing luggage.
00:18:10
Speaker
That seems to be an issue right now in Europe.
00:18:11
Speaker
But apparently these electronic tags you now put in with your luggage, you can track where your luggage is on the phone.
00:18:18
Speaker
And that would allow you to actually then see that your luggage probably shows up somewhere in Europe.
00:18:23
Speaker
in South Africa while you heading to Spain.
00:18:26
Speaker
So that's certainly advancement in technology.
00:18:28
Speaker
It won't give you luggage back, but it certainly helps you track where that suitcase ultimately ends up.
00:18:33
Speaker
So I'm currently just looking through the various options here and just trying to figure out the technology behind it and where to obtain these tags.
00:18:42
Speaker
Well, so far I've been lucky.
00:18:43
Speaker
I have not had any travel problems yet, but maybe that's something that I should be considering as well, given that I'll be traveling onwards to Europe later.
00:18:51
Speaker
Well, that's all we've got time for today, folks.
00:18:53
Speaker
Thanks again for joining us under the banyan tree.
00:18:56
Speaker
Hopefully we'll keep our luggage.
00:18:57
Speaker
And with that, thank you very much for joining us.
00:19:04
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:19:08
Speaker
We hope you enjoyed the discussion.
00:19:10
Speaker
Make sure you're subscribed to stay up to date with new episodes.