Indonesia: ‘Perfect blend’ of growth, quality, value

Fidelity Asian Values fund manager Nitin Bajaj explains why he holds over 18% of the investment trust in Indonesia, his second-biggest country allocation after China.

‘You just don’t find this mix of dominance, high returns on equity and growth anywhere else in the world,’ says Nitin Bajaj on why he holds over 18% of Fidelity Asian Values (FAS ) in Indonesia, compared to its benchmark index weighting of 2.7%.

This is the third excerpt from our recent virtual event with Fidelity Asian Values. You can watch the previous short clips on ‘Why Trump’s tariffs won’t scare China’ and ‘Incomparable China beats expensive India’. Alternatively, watch the whole 45-minute ‘Big Broadcast’.

Can’t watch now? Read the transcript

Nitin Bajaj:

Indonesia is the perfect blend of growth, quality, and value. Let’s approach Indonesia both from top-down and bottom-up. Top-down is what’s the macro picture? I think a lot of people wouldn’t know too much about Indonesia. Then let’s go bottom-up in terms of the kinds of businesses that we’re investing in there.

If you look at the macro of Indonesia, it’s a very young population, very similar to India. Very similar average age, it’s under 30 years of average age. So very young population. Average per capita income, $5,000. Pretty low-cost as well. Household debt to balance sheet 15%. Let’s put it in context of India which is a very loved market, so you’ll get a better context.

Indonesia is 15% household debt to balance sheet. India is more than 40%. Indonesian government debt to GDP is 45%. India is 95%. Fiscal deficit in Indonesia is 3% and it’s written in law they cannot be above 3%. India is 8%. So, you have a country which is extremely conservatively financed, and I think they’re still living in an after-effect of the Asian financial crisis, which happened 25% years back. It’s a really conservatively financed country with a young population. Not too many macro risks in my opinion. The canvas that you’re painting on is not very risky.

What are we painting? What are the companies we invest in? Because of the geographical nature of Indonesia because it’s thousands of islands, it’s very hard to really build a business there. Because you don’t have a very big entrepreneurial culture in the country, the guys who are incumbents just  have huge market shares. For example, the top four banks in Indonesia have 80% market share of low-cost deposits. The largest noodle company has 70%, 75% market share in the noodle business. Same in tiles. The top five players have 60%, 70% market share in tiles. I’m taking very weird industries because that’s where I’ve invested. The largest toilet seat maker has 50% market share of toilet seats. It’s just a very, very dominant, oligopolistic business environment. Which as a businessman, you like because if I’m an oligopoly or a duopoly or a monopoly, I can make more money than in a perfect competition.

Then if you look at the valuations of these things. We own Bank Negara, Bank Mandiri. Bank Mandiri’s on ten times earnings. Bank Negara’s on eight times earnings. For businesses which are growing double-digit. We own PT Surya which is the largest-, they own the Toto brand for toilet seats. It’s the largest toilet seat company in Indonesia. In a country with a housebuilding demographic, five, six times earnings. We own Arwana Citramulia, which is the largest and the lowest cost tilemaker-, not the largest, lowest cost tilemaker in Indonesia. Ten times earnings. We own ICBP. ICBP is the largest noodle company in the world. They sell 100 million packets of noodles a day. 12, 13 times earnings, with absolutely dominant market position. You just don’t find this mix of dominance, high returns on equity and growth anywhere else in the world.