Another Milestone for Indonesia!

On Friday 8 July 2011, Jakarta Composite Index (JCI) has made another accomplishment by hitting 4,000 mark for the first time in history as the index has advanced for 8.1% in 2011. This milestone further displays strong interest for Indonesian stocks both from local and foreign investors. Bank Indonesia even mentioned earlier in 4 July that we may surpass the forecasted GDP growth of 6.6%.

This year will be another great year for Indonesia as we are also highly anticipating for the investment grade rating. By the time we hit that grade, I am sure the stock index will fly even higher. Well done Indonesia!

  

Indonesian Infrastructure

For this past year or so, Indonesia has been among the top investment destinations for many global businesses. Many are shifting their manufacturing arms to Indonesia as labor are still relatively cheap while local demand remains high and increasing. But not all who had shown initial interest actually place their investment in this country. One of the main concerns is poor infrastructure.

With almost half of total population lives in Java, most companies wish to build their facilities in this island as well, thus the need of well placed infrastructure is crucial. Recently the government has opened some 70 infrastructure projects for tender. Some of the proposals have been completed, some have been won, whilst some are still in progress. But the expected completion time frame is still yet to be seen thanks to the complicated bureaucracy. It is a public secret that companies have to pay the officials at every stage of the project when dealing with the government. And judging from past experiences, some (almost all) projects just take forever to finish. I know that the corruption level remains high, but for these past several years there have been many actions to fight these corruptions. Thus I will keep my fingers crossed that these projects will be finished on time,or at least not too long.

It All Comes Down to Oil

With all the tumult in the Middle East, and the latest Libya, oil has shot through the roof. Nymex has gone to $105 while Brent has reached its 2.5 year high at $120 today.Some news reported that price is heading north because the world is worried that the crisis from Egypt and Libya could spread to Saudi Arabia, who is arguably the most important figure in the oil industry. If their supply is disrupted, I won't be surprised if $148 in 2008 could be repeated or even surpassed.

But the frightening part of the story is the fact that oil is really the most influential commodity in the world. Any price swing could virtually do some damage to many countries. I mean just these past several days, many stock indexes all over the world are turning red. Dow is red, Indonesia is red, Nikkei is red, FTSE is red, and the list goes on. Companies across various industries are affected by oil in one way or the other, and sometimes the damage can be devastating. So business owners, you better take any precautionary steps as necessary to minimize the upcoming oil damage. Just remember the lesson we learned from 2008 and don't repeat the same mistake.

Your Money Eats Less Now

Food items have been outrageous these days. Rice, sugar, and chili have been the headlines of newspapers for quiet sometime now. Main reason behind this price surge is believed to be the tight supply from the extreme weather from this past year that have disrupt harvests all over the country. Some economists also say that this is caused by increased demand from emerging countries, including Indonesia, related to their rapid economic expansion. In a nutshell, as people earn more, they eat more.

But I personally think that this time is a pretty bad one. Well its not like we are having major food shortage and people are dying of starvation on the streets. But this is Indonesia who probably eats rice more than any other country in the world, and the fact that we have imported some 800k tons of rice from Thailand so far is pretty worrying. Also, I heard that some people actually stole chilis from the farms at night so that they can sell it in the market with the skyhigh price. But nevertheless, I am still very grateful that food are still widely available and that the government is doing something about it. They decided to suspend the food products import duty for a while, so that scarcity of food can be prevented. The government also expect the price rise to soften pretty soon because harvesting season starts around late February until its peak in April.

Well, lets just pray that the harvest will go smoothly and that the price will stabilize itself soon (fingers crossed!)

The New Textile Land?

Indonesia might very well be the next big textile destination for investors from around the world. China has virtually monopolized the industry for the past decade or so. But lately investors have been considering to move out because of their much higher average factory worker salary than countries like Indonesia and Bangladesh. Well the latter actually have been getting lots of orders from brands worldwide for some time. But I personally believe that Indonesia might be the best option for the next best destination.

Some news have reported that investors, mainly from China, have been planning to build factories of sewing machine and garments here. And just fresh from yesterday, expected land acquisition value for factory investments is even higher than 2010. So lets just keep our fingers crossed and hope that its not only for textiles and garments, but for everything!

If you want to see the wage comparison, read this article.

When will the Bubble burst?

Almost all commodities are having a very good year so far with prices skyrocketing even to their highest ever for some. But despite their lucrative opportunity of profit taking, this phenomena can burst in any moment. 

In September 2008 just before Lehman Brothers filed their bankruptcy, commodities are doing fairly well just like today. But then, after the global meltdown wave has rippled, the prices tanked in a very short time. Rubber for instance, lost more than half of its September value by December. The steep price drop help to worsen the global crisis impact with many companies who are dependent on those commodities having to write off much of their inventory value and selling in a way lower price then several months earlier.  

Today, the bubble is getting bigger and bigger. To minimize the impact, we need to analyze the real cause of the price trend. Is it legitimate short of supply and abundant demand, or is it mostly speculatives in nature. We can be rest assured if demand is actually increasing and it drives the price up, because it will keep going up for another while. But if it is mostly speculatives, we need to pay special attention to our portfolio, cause it can burst at any moment.

This is Commodities Risk Management.   

Pircture courtesy of jgreghenderson.com.

Congratulations Indonesia!

Moody's has upgraded Indonesia from Ba2 to Ba1 which is only one notch away from investment grade. This is quite an accomplishment and economists are expecting Indonesia to get investment grade by either mid 2011 or 2012.

But I guess even more important than the grade is to improve our infrastructure and law enforcement system. Reliable transportation and customs (land, sea and air) will be a great incentive for investors from around the world. Also a better law enforcement system and fighting the corruption will help in creating political stability which will ease investor's concern of Indonesia.

I know it's not going to happen instantly, but ALL THE BEST INDONESIA!

Picture courtesy of deviantart.net

Good Time to Invest in Indonesian Stocks?

The IDX went down 7% last week in just couple days of trading, but it soon bounced yet not to the same level as it was. Some bluechip companies went down and dragged the whole index down. Well, actually it might be a good starting time if anyone wants to start investing in Indonesian stocks. But we MUST do our homework of analyzing the financials and ratios and news before we proceed with any decision.

Warren Buffett once said "Be greedy when everyone is afraid, and be afraid when everyone is greedy."
The most fundamental principle of stock investing is buy low and sell high. But, it is not easy to overcome human nature of fearing a deteriorating stock and excited of buying a skyrocketing stock. But hey Buffett's portfolio speaks for itself. So happy investing!

Coal is Heating Up!

Well, the recent heavy flooding of coal mines in Queensland, Australia has really affected the whole world. The lessen supply has made coal an expensive commodity lately. It also affect another commodity, steel. Steel production comes from coal. The scarcity of coal would translate to lessening supply of steel as well. With increasing global demand of steel from manufacturing countries, the price is very likely to keep going up over the next months.

Oil is going up!

Oil has reached the level of around $90 (again). This has worried many industries and countries across the globe as oil is among the most indispensable commodities around. Oil affects so many industries and aspects of life. Transportation, energy, you name it. I guess every single industry in the world is somehow dependent on oil. Even personals like us use oil a lot.

So get ready for the price increase everyone!

How it works in Commodities Exchange

Had a very interesting conversation with my colleague today about trading commodity futures. He went to Singapore sometime ago to check out how it really works with futures. Both he and I are genuinely interested in investing for rubber which has doubled its price since May 2010. But, the problem is the amount of risk that we have to bear. Every transaction in commodity exchange has to be done with leverage. That is a MUST. And the amount of leverage varies depending on the type of commodities. For example, the leverage for rubber is 12x. That means we can buy 12 times as much as our money worth. But remember that if we lose money, we lose 12 times as much too!

So trading commodities sound very very tempting for its potential profit, especially these days with the extreme weather still going on around the world. But remember that with all profit that we could get, we also have to face the RISK.

The Real Cause of the Price Hike

People, the price of most commodities have skyrocketed in 2010. Analysts quoted the causes to be extreme weather and increasing demand from heavy manufacturing countries like China and India. This is actually just an application of economic's basic principle of supply and demand. Price goes up when supply runs out and when demand gets bigger.

Do YOU have a different opinion about this? Please feel free to comment this post and we can all discuss about it together.

Great Article on Indonesia Economic Development

Budi Akmal Djafar wrote a very interesting article in Jakarta Globe about the lacking of education system improvement here in this country, Whilst Indonesia is still in the booming mode, there are still lots of areas to improve, notably education. He mentioned that South Korea and Japan used government enforced education decades ago to bring them to where they are now.

Check out the article here.

Focus on Commodities

As we all have witnessed in 2010, extreme weather has greatly impacted price of commodities around the world. The scarce supply and increasing demand have driven the price up through the roof. Many many investors and brokers have devoted more attention to the commodities market for the lucrative rate of return.

Based on all these facts, I have decided to focus more on the news and analysis about commodities in Indonesia. My wish is this blog can be used to help you to gather information or discuss about what's going on the Indonesian and global business world.

Thanks and God bless.

Happy New Year IDX!

IDX (Indonesian Stock Exchange) has performed really well this year with its astounding 46% jump during 2010 period, continuing its 87% gain during 2009. We started off in the region of 2500ish and ended the year in 3700ish. Hopefully 2011 will be another wonderful year for us. Well done Indonesia!

To get an interactive chart, click the link below.

http://www.bloomberg.com/apps/quote?ticker=JCI:IND#chart

Happy New Year!

Indonesia (might) finally get Invesment Credit Rating

News reported that Moody's might upgrade Indonesia's credit rating from Ba2 into an investment grade. This will put Indonesia on the same level as Greece, Egypt and Colombia.

Indonesia has been one of the most exciting economies to follow this year, with the national stock exchange IDX has outperformed most of the major indexes around the globe. So, let's just hope the best for this upgrade and hopefully it will bring even more business opportunities in this country.

Check out the link for the complete news.
http://www.bloomberg.com/news/2010-12-01/indonesia-s-credit-ratings-on-review-for-possible-upgrade-moody-s-says.html

Palm Oil Certification

There have been arguments about sustainability certification of palm oil products for the past year or two. The Europeans as the consumer would like to apply certain standards, called RSPO (Roundtable on Sustainable Palm Oil), regarding amount of deforestation and other environmental issues to palm oil producer countries. However, many of the producers have complained the amount of cost and energy spent on abiding to the regulation does not worth the result since the Europeans are not major players in the market anyway.

During the past year, Indonesia as the number 1 producer in the world has planned to apply its own standard called ISPO (Indonesian Sustainable Palm Oil) which is similar to but less stringent than RSPO. Those who has qualifed for RSPO will automatically be ISPO certified. Therefore it will not hassle those who has been certified earlier. Malaysia as the number 2 producer is planning to join Indonesia on pushing this standard.

Indonesia is number 121 in the world!

I came across this report from World Bank called Doing Business  which ranks each of 183 countries by their easiness of doing business. Out of 183 countries, Indonesia is ranked at 121 for 2011, went down from 2010's 115.

Now remember that 121 is the overall ranking, and that there is a ranking for each areas graded. The areas are:
1. Starting a business: 155. It is not a good grade, and I believe its because of the complexity of paperworks and procedures necessary to establish a business.
2. Dealing with Construction Permits: 60. Not bad. I think there is definitely an improvement over getting the permit, on the simpler procedures and faster processing time.
3. Registering Property:  98. Now getting the permit does not include the registering part of the property. Apparently there is still some lagging in this area.
4.Getting Credit: 116. I believe the low score on this area is caused by the lack of law enforcement regarding the repossession of collateral in the case of credit default. This is the reason of why financial institutions in Indonesia are making it tougher for businesses to get credit. Especially after the 2008 global crisis, everyone is now taking a more conservative approach in giving credits. Also on this area, it involves the registration of individual citizens for their credit profile. So far, Indonesia has none of this records whatsoever. This non-existent credit profiling system drops our score.
5. Protecting Investors: 44. This is a very good score for Indonesia. It is witnessed by the gigantic amount of money flowing into the country from foreign investors in 2010. Really a job well done here.
6. Paying Taxes: 130. I guess this is sort of expected of Indonesia to be lagging in this area because corruption has been "flowing in our vein." Over the course of my lifetime, I have seen countless amount of corruption both in small and larger scale done by all sorts of people. Its been a public secret that many businesses avoid formal  taxes by paying a sum of money to the tax collector to get a lower rate (much lower).
7. Trading across Borders: 47. This involves amount of paperwork, cost and speed in completing export and import activities. With the establishment of free trade among the ASEAN members, this has to be kept really well in order to take advantage of the trading system.
8. Enforcing Contracts: 154. An area that we really need to improve here. Our worst point in this area is that on average, the cost of enforcing the contract is 122.7% of the claim. This makes it useless to be pursued. I mean why bother wasting money, time, and other resources just to end up losing more money than we already had?
9. Closing a Business: 142. It takes an average of 5.5 years to close a business in Indonesia . Also, the average recovery rate is only 13.2 cents of a dollar (compared to 69.2 cents from the best practice). This area is closely related with the other areas mentioned previously. If we can enforce contracts better, then we can expect an improvement on this.

Given the fact that Indonesia still falls in the category of Developing Country, then we are not doing too bad. But there is a large room for improvement of course. And hopefully, we are heading that way.

For more information, check out http://doingbusiness.org/data/exploreeconomies/indonesia/

Introduction

To start off, I would like to introduce myself. My name is Fandy Santoso. I had the privilege of going to the United States to get my bachelor and graduate degrees. I went to Pensacola Christian College in Pensacola, Florida and took Marketing as my major. After graduating with a bachelor degree, I decided to pursue an MBA degree in the same school. Thankfully, I got into a scholarship program where I did not have to pay a penny for my education but instead  I got paid by my job at school. After finishing the rigorous program, I decided to go back to Indonesia to start my career.

I just returned from the US in June 2010, and was and still am amazed on how much Indonesia has to offer to the global business world. We have vast resource of commodities and so much more. Indonesia is currently the top producer for palm oil (the booming product of the year), coffee, rubber, and many other traded commodities around the world. Well, given all the deficiencies that we still have, Indonesia is doing very well in 2010, and hopefully in the years to come.

Through this blog, I will try to filter out good quality news and updates related to business opportunities in Indonesia, so that you don't have to browse around the internet to find them.