Indonesia's infrastructure boom

Jakarta, an ever growing city

Despite stimulus packages and all sorts of federal funds, the American gross domestic product is only expected to expand by about 2.7 percent. In comparison, the Indonesia's is expected to grow by 5.6 percent - what has made Indonesia's equity market bring a more significant return for investors.

According to information compiled from Bloomberg, as of 19 January, the Indonesian stock market has seen a boom in infrastructure sectors such as basic materials and industrials. In fact, sectors that include materials, industrials and utilities make up more than a third of the Indonesian stock market and as such, look to benefit from increased spending in the region.

Need for infrastructure

As with most countries during the recession, the Indonesian government encourage spending on new infrastructure in order to encourage economic growth and reduce unemployment. Such projects include a six-lane highway designed to span Java, Indonesia's most populous island, as well as other schemes to improve the country's roads, railways and ports.

During his last campaign, President Susilo Bambang Yudhoyono pledged to double infrastructure spending to US$140 billion over the next five years, and he seems to be sticking to his word. Such expenditure, he believes, will help him boost economic growth to seven percent by 2014 from an estimated 4.3 percent last year.

With such projects in the works, Indonesia is attracted long-term investors to Asia due to the fact that during a downturn, there will always be a need for infrastructure advancement in developing countries.

Despite Indonesia's seemingly impressive growth, only two Indonesian companies are widely traded on US exchanges: Indosat (Aerospace and Defence) and Telekomunikasi Indonesia (Telecoms) both of which saw healthy one year total returns - 26 percent and 92 percent respectfully.

With that in mind, it looks like Asia is quickly becoming the place for prominent investment. The UAE better watch out...

Image from BusinessWeek.com

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