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Postcard from Asia: India and Indonesia

They may be far apart, but India and Indonesia have been through similar economic transformations. Here, Sat Duhra of Henderson Far East Income Limited explains the investment case for each…

At over 3000 miles apart, India and Indonesia bookend Asia. Yet, over the last few years they have followed remarkably similar paths towards economic transformation.

Their economies have been turbocharged by targeted policy efforts, increasing private investment and demographic changes. Both countries have improved balance sheets and strong currencies. As a result, they are piquing the interest of investors – including Henderson Far East Income Limited.

India – a newly-liberalised energy sector

When first elected as prime minister ten years ago, one of Narendra Modi’s key aims was a total reform of the Indian economy. This was intended to attract both internal and external investment, boosting economic growth.

Modi’s governments have introduced a swathe of reforms to support these aims. These include reducing the corporate tax rate, addressing the long-standing bad debts at state banks and allowing increased international investment in previously protected industries.

There is further to go. Private investment and production have grown rapidly. Some companies have chosen to move production to India, away from out-of-favour China. At the same time, a growing urban middle class is creating a new domestic market.

We increased our allocation to India in 2023. One area benefiting from the reforms is India’s energy sector. In HFEL we invest in both NTPC and Power Grid. Energy companies have been supported by regulatory intervention that reduced the burden of subsidising low-paying sectors and increasing renewable energy capacity. Meanwhile, demand is growing from urban households and expanding manufacturing.

Indonesia – banks helping to fuel the next stage of growth

A similar story has played out in Indonesia. In his ten years as president, Joko Widodo (popularly known as Jokowi) has overseen extensive economic reforms. Indonesia has a natural advantage over other economies due to its nickel deposits. Nickel is an essential component in technology and electrical vehicles.

Even so, a previously nationalised and inefficient industry was reformed to become much more competitive. Elsewhere, labour laws were reformed, and some nationalised sectors opened up. The government has also invested in infrastructure, which should have an impact in future years.

As a result, Indonesia has seen 5% average annual growth consistently over the last decade, bar 2020-21. While this is lower than for some peers, its stability has improved investor and consumer confidence. Jokowi’s chosen successor Prabowo Subianto won the recent Presidential election. He is expected to continue the reform agenda.

Inflated commodity prices and a strong recovery from the Covid pandemic leave Indonesia’s economy in something of a ‘sweet spot’ in our view. Indonesia is also benefitting from the largest working age population in the region, which could fuel further growth.

We also increased our allocation to Indonesia in 2023. Part of this allocation is an investment in Indonesian banks, which benefit from increasing lending in a growing economy. The two that we currently invest in are Bank Negara Indonesia and Bank Mandiri, which both lend to larger, growing businesses.

Glossary

Balance sheet – A financial statement that summarises a company’s assets, liabilities and shareholders’ equity at a particular point in time. Each segment gives investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. It is called a balance sheet because of the accounting equation: assets = liabilities + shareholders’ equity.

Commodity – A physical good such as oil, gold or wheat.

Disclaimer

References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

Not for onward distribution. Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Henderson Investors International Limited (reg no. 3594615), Janus Henderson Investors UK Limited (reg. no. 906355), Janus Henderson Fund Management UK Limited (reg. no. 2678531), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Janus Henderson Investors Europe S.A. (reg no. B22848 at 78, Avenue de la Liberté, L-1930 Luxembourg, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

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Henderson Far East Income Limited is a Jersey fund, registered at IFC-1 The, Esplanade, St Helier JE1 4BP, Jersey, and is regulated by the Jersey Financial Services Commission.

Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Henderson Far East Income Limited is a Jersey fund, registered at Liberté, 19-23 La Motte Street, St Helier, Jersey JE2 4SY and is regulated by the Jersey Financial Services Commission] Ref: 34V
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